Crucial Insights on Alibaba's Q4 Performance and Future Outlook
- BABA experienced a rough day in the market following its Q4 earnings report, missing profit and sales forecasts due to slowed Chinese consumer spending and increased competition. But, despite the misses, U.S.-listed shares of Alibaba have soared around 45% year-to-date.
Alibaba Falls Short of Projections Due to Slump in Chinese Consumer Spending and Intense Competition
The Nitty-Gritty
- Alibaba reported an adjusted EPS of 1.57 yuan ($0.22) and revenue growth of 7% year-over-year to 236.5 billion yuan ($32.81 billion). Unfortunately, both figures fell short of expectations.
- Sales ascended 12% to RMB71.08 billion at the Taobao and Tmall Group, jumped 22% to RMB33.58 billion at the Alibaba International Digital Commerce Group, and grew 18% to RMB30.13 billion at the Cloud Intelligence Group.
CFO Toby Xu had this to say: "We're confident in our business outlook and will keep investing in our core businesses to strengthen our competitive advantages."
The Silver Linings
- Alibaba's cloud business continues to be a growth driver, with cloud revenue surging 18%. Although the adjusted EBITA margin fell due to increased investments, the company's ongoing investment in AI technology has resulted in triple-digit growth for seven consecutive quarters.
- Alibaba launched a 0.6% software fee on Taobao in late 2024, marking the start of their monetization strategy. As this strategy intensifies in 2025, it's expected to support growth into 2026.
The Peek Ahead
- Despite the challenges in the current market, Alibaba's cloud and AI businesses are expected to drive future growth. The company plans to up the ante in AI and cloud infrastructure to stay competitive.
- The gradual phase-out of merchant rebates related to software fees is anticipated to boost monetization on e-commerce platforms, while adjusted EBITA margins in cloud services are expected to stabilize at high single digits.
The Analysts' Take
- Benchmark lowered their target price to $176 but maintained a Buy rating. Morningstar assigns a fair value of $150 per share and a wide moat rating, but highlights high uncertainty. Barclays and JP Morgan raised their 12-month price targets to around $170–$180, holding overweight ratings.
Looking Ahead: 2026
- Forecasts for Alibaba's stock price in 2026 vary, with some analysts predicting appreciation within the range of $90.92 to $91.86 and others anticipating targets closer to $150–$180.
- The ongoing slowdown in Chinese consumer spending and competitive pressures, particularly from JD.com and Pinduoduo, remain substantial obstacles. Alibaba's success hinges on its innovations in cloud, AI, and e-commerce monetization strategies.
The volatile stock market witnessed a surge in U.S.-listed shares of Alibaba, despite the company missing profit and sales forecasts in Q4, due to increased focus on core businesses like finance, technology, and trading. As Alibaba gears up for future growth, analysts anticipate a diverse range of stock price predictions for 2026, with values ranging from $90.92 to $180.
