Key Morningstar Metrics for Alibaba Group
- Fair Value Estimate: $179
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: High
Alibaba 09988 expects a higher cloud growth rate over the next few quarters. The penetration rate of Quanzhantui, or QZT, a marketing tool that boosts customer management revenue, or CMR, continued to rise in August.
Why it matters: We raise our 2025 cloud revenue growth forecast to 30%, higher than the 26% in the June quarter, driven by new demand from the automotive, education, and multimedia industries, which are training proprietary models using their own data.
- Additional demand is emerging from the education and healthcare sectors, as well as from companies developing tools that leverage Alibaba’s open-source model for artificial intelligence training. We also increase our forecast for high-margin CMR growth to 10% for fiscal 2026 (ending March), in line with guidance.
- We estimate PDD Holding’s QZT penetration ratio reached 80%, three years after its mid-2022 launch. Alibaba’s QZT has been in deployment for about one year and four months, with a penetration rate of around 30% as of April. We believe Alibaba’s penetration ratio still has room to grow.
The bottom line: We increase wide-moat Alibaba’s fair value estimate by 17% to USD 179 per ADS or HKD 175 per share. We believe the shares are undervalued, as the market has yet to fully reflect Alibaba’s AI cloud potential and the current management’s ability to enhance competitiveness.
- We lift our adjusted EBITA forecasts by 4%-30% over the next decade, reflecting stronger contribution from CMR and cloud revenue, as well as improved profitability at Alibaba International Digital Commerce, or AIDC. Notably, our midcycle adjusted EBITA estimate rises by 28%.
- AIDC reduced its adjusted EBITA loss margin to negative 0.2% in the June quarter, and Alibaba aims to make AIDC profitable.
Key stats: According to IDC’s August report, Alibaba held a 24.6% market share in China’s AI public cloud services in 2024, ranking number one for the second consecutive year. The overall market grew 55% in 2024.
