The company disappointed the market with its results for the June quarter. However, analysts believe that the firm is showing resilience in a difficult macroeconomic environment.
The results of Alibaba (NYSE: BABA) missed revenue and profit expectations for the June quarter. The Chinese retailer’s cloud computing division revenue rose 6% year-on-year, with revenue related to artificial intelligence (AI) products reported to have grown at a rate of “three digits“. Shares of the Chinese company traded in the United States fell slightly on Thursday afternoon, after a sharp decline in premarket trading.
Alibaba Group Holding (BABA) shares are, however, showing a recovery and are up nearly 5% (+4.8%) from difficulties in pre-market trading on Thursday, after quarterly results failed to meet expectations.
Cloud segment and AI-related revenues increase
The company’s cloud computing division posted a 6% rise in revenue, reaching 26.55 billion yuan, with Alibaba stating that “AI-related product revenue continued to grow at a triple-digit rate year-on-year,” though a figure for that segment was not disclosed. Its e-commerce division, which includes Chinese online shopping platforms Taobao and Tmall, reported a 1% decline in revenue, reaching 113.37 billion yuan.
Alibaba’s recovery on Friday may be related to Truist Securities adjusting its outlook on Alibaba Groupreducing the target price for the stock from US$110.00 to US$100.00. Despite this adjustment, the firm reaffirmed its buy rating for the company’s shares. The review follows Alibaba’s first quarter fiscal 2025 performance, which demonstrated strong operational execution amid challenging economic conditions.
Alibaba Recovery
The company reported high single-digit year-over-year growth in gross merchandise volume (GMV), indicating a stabilization of market share across the Tmall Taobao Group (TTG), driven by an increase in order frequency.
The Truist Securities analyst noted that fiscal year 2025 is expected to be a period of investment for Alibaba, focusing on key areas such as TTG, Alibaba Industrial Digitalization Commerce (AIDC), and cloud services. These strategic investments are expected to maintain margins at current levels in the near term.
The firm’s Buy rating is based on several factors, including the projection that customer managed revenue (CMR) will align with GMV growth within the next 12 months, improved performance in AIDC on the back of successful initiatives in Choice and cross-border commerce, double-digit percentage growth in cloud services in the second half of fiscal 2025 with improving margins, and the expectation that most of the currently money-losing segments will break even within one to two years.
Alibaba-CEO-e1687254789222.jpg
Alibaba’s recent quarterly results have shown resilience in a challenging macroeconomic environment, managing to maintain market share through TTG. The company’s strategic investments across its business segments are designed to drive future growth and profitability. While these investments are expected to keep margins stable in the near term, Truist Securities anticipates that these efforts will translate into improved financial metrics in the years ahead.
The firm’s analysis points to several key growth drivers for Alibaba, including the expected alignment of CMR with GMV growth, the success of AIDC initiatives, and expected double-digit growth in cloud services. The positive outlook on these factors supports the firm’s buy rating, even as the target price has been lowered.
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
