Alibaba Earnings: Adjusted EBITA Misses on Investments, but Long-Term Outlook Remains Positive

Key Morningstar Metrics for Alibaba Group Holding

• Fair Value Estimate

  : $258.00

• Morningstar Rating

  : ★★★★★

• Morningstar Economic Moat Rating

  : Wide

• Morningstar Uncertainty Rating

  : High

What We Thought of Alibaba Group Holding’s Earnings

Alibaba Group Holding BABA targets cloud and AI external revenue compound annual growth of over 40% to CNY 690 billion in five years, with adjusted EBITA margin expanding to 20% in the long run. It expects quick commerce to generate positive cash flow by fiscal 2028 (ending March) and become profitable in fiscal 2029.

Why it matters: We keep our cloud revenue forecast for fiscal 2031 largely unchanged at CNY 656 billion and maintain our adjusted EBITA margin estimate of 20% for fiscal 2035, in line with Alibaba’s target. The strong growth will be driven by artificial intelligence cloud, model-as-a-service offerings, and AI applications.

• We think Alibaba is on track to reach its quick commerce target. We have brought forward the expected turnaround by a year to fiscal 2029, based on guidance. Alibaba continues to expand its share of quick commerce gross merchandise value, increase average order value, and improve profit per order.
• December-quarter adjusted EBITA missed our estimate, but we are keeping our midcycle adjusted EBITA outlook largely unchanged as our long-term positive view remains intact. We think it is strategically sound to sacrifice near-term earnings to capture long-term leadership in AI and quick commerce in China.

The bottom line: We maintain our $258 per share fair value estimate for wide-moat Alibaba. The shares appear undervalued.

• The market appears to be overly discounting short-term earnings pressure from investment in AI and quick commerce while underestimating the potential upside from AI monetization.

Key stats: The company’s strong net cash position of $42.5 billion at the end of 2025 provides ample flexibility to fund Alibaba’s AI and quick commerce initiatives.

• Alibaba expects year-on-year growth in cloud and AI revenue from external customers to continue accelerating in the coming quarters, after increasing to 35% in the December quarter from 29% in the prior quarter.