The Hangzhou-based Alibaba (BABA) reported mixed results for its June quarter, but the key points did not undermine the bullish thesis. Although revenues fell short of expectations, the company continues to grow despite tough macro conditions, thanks to its diverse business model and multiple segments. Alibaba also maintains a significant amount of cash on its balance sheet and is generously distributing it to shareholders.
When you combine these positives with the company’s bargain valuation, it appears that the long-term investment potential outweighs the macroeconomic risks. In this article, I’ll delve into three reasons why investors should override the current unimpressive momentum and remain patiently bullish on Alibaba for the long haul.
Alibaba’s Revenues Remain Strong Despite Adverse Macroeconomic Conditions
The first point that highlights my optimism about Alibaba is the resilience of its business in the face of a very complex scenario in China.
In the June quarter, the Chinese giant reported revenues of 243.24 billion Chinese yuan (nearly $34 billion), marking a 4% annual increase, though it fell short of the 249.05 billion yuan expected. While this could have been better, it’s still a solid performance, given the pressure from competitors like JD.com (JD) and PDD Holdings (PDD) and a more cautious Chinese consumer in a still-adverse macro environment.
A significant reason behind the company’s ability to sustain reasonable revenue growth is its highly diversified business—a major competitive advantage over its domestic peers.
For example, in the most recent quarter, Alibaba’s most significant e-commerce segment, Taobao and Tmall Group, saw a 1% year-over-year decline. However, this drop was partially offset by growth in the International segment, where platforms like Lazada and Aliexpress saw sales increase by 32% year-over-year. Alibaba’s supply chain arm, Cainiao Logistics, also grew by 16% year-over-year.
Another key point is Alibaba’s cloud business. The company has invested heavily in AI, and as a result, quarterly revenue from the Cloud Intelligence Group reached 26.5 billion yuan, up 6% year-over-year—the fastest growth rate since the June quarter of 2022. A major driver of this result was AI-related product revenue, which continued to grow at triple digits year-over-year. You can see the results of each segment below.
Overall, Alibaba’s diverse mix, with e-commerce accounting for around 47% of total revenues in the June quarter, demonstrates the company’s resilience to macroeconomic headwinds, especially as all other segments showed growth.
Even though the e-commerce business has struggled to reaccelerate revenues, it’s not performing poorly. Despite a decline in revenue, user activity remains strong, with double-digit growth reported in gross merchandise value (GMV) on Taobao and Tmall during the June quarter.
While revenue is a direct measure of income, GMV reflects overall activity and potential. With the anticipated rebound in Chinese consumer spending, GMV could translate into future revenue growth. As long as GMV remains strong, revenue challenges may only be temporary. According to Alibaba’s CEO, Eddie Wu, revenue growth in the e-commerce segment is expected to return in the second half of 2025.
Alibaba Has a Ton of Cash Reserves
The second bullish point to note is that Alibaba has a substantial amount of cash on its balance sheet. If cash is king, the market should be rolling out the red carpet for this Chinese e-commerce giant. Yet, that doesn’t seem to be the case. To put it in perspective, Alibaba holds about $55.8 billion in net cash, which represents approximately 28% of its $197.6 billion market cap.
Meanwhile, with this strong cash position, the company has authorized around $31.9 billion for buybacks, which is equivalent to 16.1% of its market cap. As Alibaba accelerates its buybacks each quarter, this ongoing strategy is likely to drive EPS growth by reducing the share count.
In the June quarter, management continued its aggressive share repurchase strategy, spending $5.8 billion on buybacks—a significant increase from the $4.8 billion spent in the same period last year. Additionally, Alibaba has been paying a dividend yield of 1.2%, which is quite respectable for an e-commerce company.
Alibaba’s Valuation Presents a Remarkable Bargain
Last but not least, let’s dive into Alibaba’s valuation. If we assume that a company wouldn’t buy its own shares if it considered them overvalued, then from this perspective, Alibaba stock appears to be quite undervalued. And indeed, when we examine various valuation metrics, this becomes evident.
It’s intriguing to see that Alibaba currently trades at multiples similar to those of defensive businesses with limited growth prospects, like AT&T (T) and Verizon (VZ) in the telecom industry. The Chinese giant trades at a 9.4x forward P/E, significantly below the industry average of around 15x, and well below its historical average of 17x.
When we consider cash generation, Alibaba trades at 7.4x price-to-cash flow, roughly 18% below the industry average. These multiples seem extremely de-risked for long-term investors, especially considering Alibaba’s resilience in the face of a challenging macroeconomic environment in China.
Of course, it’s important to understand the reasons behind this discount. There are significant risks associated with the investment thesis. Pricing in regulatory and political risks is challenging, particularly with the intensified regulatory scrutiny by the Chinese government on large technology companies, including Alibaba. Many market participants have gone as far as to label Chinese companies as uninvestable.
While these risks should not be overlooked, at current multiples, investors appear to be well-compensated for these uncertainties, especially those with long-term perspectives.
Is BABA Stock a Buy, According to Analysts?
It seems that Wall Street is also on board with Alibaba stock. The stock has received 12 Buys and one Hold rating in the past three months, forming a Strong Buy consensus rating. Notably, Bank of America’s (BAC) Joyce Ju has raised her price target from $103 to $106 prior to the June quarter results. Overall, the average BABA stock price target is $109.45, suggesting upside potential of 30.8% from the current price.
Key Takeaways
Alibaba’s June quarter results highlight strong performance in its international and cloud segments, along with GMV growth in the e-commerce sector despite challenging conditions. The company’s diverse business model, promising growth prospects, robust cash reserves, and attractive valuation make it a compelling option for long-term investors. While macro risks should not be ignored, the stock’s current price and favorable analyst targets suggest it could be a smart buy.
