Alibaba Reports Strong Q3 Growth Amid E-Commerce Rebound

Alibaba (NYSE: BABA) shares rose significantly following the company’s fiscal third-quarter results. These results highlighted a rebound in its e-commerce sector and notable growth in artificial intelligence (AI).

Over the past five years, Alibaba’s stock has faced challenges, losing approximately a third of its value. However, recent trends show promise, with shares up about 70% year-to-date and nearly doubling over the past year as of this report.

Where to invest $1,000 right now? Our analyst team recently identified the 10 best stocks to buy now. Learn More »

To evaluate whether Alibaba’s recent stock rally can sustain, let’s examine the company’s latest earnings.

E-commerce Growth Signals Turnaround

Alibaba’s primary source of income comes from its e-commerce operations, which include the leading platforms Tmall and Taobao. Tmall is the premier e-commerce marketplace in China for established brands, whereas Taobao is utilized by individuals and businesses for merchandise sales.

Despite facing rivalry from PDD and overall economic downturns in China, Alibaba’s e-commerce division experienced solid growth. During the fiscal third quarter, which concluded in December, this segment achieved a 5% increase in revenue, reaching $18.6 billion, with third-party business growing by 9%. The company attributed this success to increased gross merchandise value (GMV) and a higher fee take rate on its platforms.

Management also highlighted the adoption of its new AI marketing tool, Quanzhantui, along with success from a newly implemented software service fee. For the segment, earnings before interest, taxes, and amortization (EBITA) rose by 2% to $8.4 billion.

Additionally, Alibaba saw significant customer growth, including a 49 million total of its 88VIP premium memberships, marking double-digit growth.

The cloud intelligence group reported a 13% revenue increase to $4.3 billion, with AI-related revenue growing at triple-digit rates for the sixth consecutive quarter. This segment’s adjusted EBITA grew by 33% to $430 million, supported by its advanced AI model, Qwen 2.5-Max.

Looking ahead, Alibaba plans to make substantial investments in AI infrastructure, intending to spend more in the next three years than over the past decade. The objective is to achieve artificial general intelligence (AGI), with aspirations for AI to mimic 80% of human abilities.

Other segments also presented impressive growth, particularly the international commerce division, which saw a 32% revenue rise to $5.2 billion. While these emerging businesses are primarily unprofitable now, management anticipates that the AIDC segment will report its first profitable quarter in the coming fiscal year, a notable recovery from the $678 million EBITA loss recorded in the fiscal third quarter.

Total revenue for Alibaba increased by 8% to $38.4 billion. Adjusted earnings per American depositary share rose by 13% to $2.93, and EBITDA adjusted for interest, taxes, depreciation, and amortization climbed by 4% to $7.5 billion. Free cash flow stood at $5.3 billion, while the company maintained $54.8 billion in cash and short-term investments against $31.7 billion in debt, alongside $47.4 billion in equity and additional investments on its balance sheet.

Image source: Getty Images.

Investment Potential for Alibaba

With ongoing investments aimed at revitalizing its e-commerce operations, Alibaba’s latest quarter showcased these efforts yielding positive outcomes. Improved GMV translated into solid revenue and EBITA increases. Quanzhantui appears to be gaining traction, and the newly implemented technology service charge did not negatively impact business.

Additionally, Alibaba continues to be a frontrunner in AI within China. The company recently secured a contract with Apple to supply AI services for Apple Intelligence in China while maintaining consistent growth in its cloud computing sector. As lower-margin contracts phase out, profitability remains on the horizon.

The Chinese government seems to be supporting the nation’s tech companies in the AI sector. Alibaba’s founder, Jack Ma, previously distanced from the limelight after critique of China’s financial sector, was recently seen meeting with President Xi Jinping alongside other business leaders.

Government endorsements are positive news for Alibaba as it endeavors to innovate and expand. From a valuation perspective, Alibaba shares are trading at a forward price-to-earnings (P/E) ratio under 15 based on fiscal 2026 analyst estimates. The price/earnings growth (PEG) ratio is below 0.4, indicating that the stock may be undervalued.

BABA PE Ratio (Forward 1y) data by YCharts.

Considering Alibaba’s current valuation and the ongoing turnaround, the company presents an attractive investment opportunity. As a leader in AI within China, its valuation multiple is expected to improve, while achieving profitability in its AIDC business could further enhance earnings.

Consider This Opportunity Now

If you’ve previously felt that investing in the most successful stocks was out of reach, now is your chance to reconsider.

Our expert team occasionally issues a “Double Down” Stock recommendation for companies poised for significant growth. If you’re worried about missing your opportunity to invest, act quickly. The statistics are compelling:

• Nvidia: If you had invested $1,000 at our insider recommendation in 2009, you’d have $340,411!*
• Apple: If you had invested $1,000 at our recommendation in 2008, you’d have $45,570!*
• Netflix: If you had invested $1,000 at our recommendation in 2004, you’d have $533,931!*

Currently, we are issuing “Double Down” alerts for three exceptional companies, and opportunities like this do not arise often.

Learn more »

*Stock Advisor returns as of February 24, 2025.

Geoffrey Seiler has positions in Alibaba Group. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect the opinions of Nasdaq, Inc.