Alibaba Group Shows Strong Growth Potential Amidst Market Challenges

Alibaba Group (BABA) shares have surged by 25.9% year to date, outperforming the Zacks Internet-Commerce industry, the Zacks Retail-Wholesale sector, and the S&P 500, which have decreased by 10.8%, 6.7%, and 8.6% respectively. This growth suggests that the company has a significant trajectory ahead, despite facing competition from global e-commerce giants like Amazon (AMZN) and eBay (EBAY). While Amazon shares have declined by 20.6% this year, eBay has experienced a modest gain of 5.7%.

This positive performance positions Alibaba as a compelling investment opportunity moving into 2025, fueled by three critical growth catalysts.

Year-to-Date Stock Price Performance

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1. Accelerating Growth in Core Businesses

Alibaba’s December quarter results highlighted its strategic refocusing efforts, reporting revenues of $38.38 billion—a year-over-year increase of 8%. Particularly notable was the growth in customer management revenues for Taobao and Tmall Group, which rose by 9% year-on-year, showcasing the success of monetization initiatives and increased adoption of tools like Quanzhantui.

The Zacks Consensus Estimate for fiscal 2025 revenues stands at $137.03 billion, reflecting a projected growth of 5.01% compared to the prior year. Recent revisions also show a favorable outlook with a 1.4% increase in earnings expectations over the last month, estimating earnings at $8.92 per share. This trend indicates market optimism regarding Alibaba’s path forward.

Alibaba Group Holding Limited Stock Price and Consensus

Alibaba Group Holding Limited price-consensus-chart | Alibaba Group Holding Limited Quote

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Recent developments in AliExpress further emphasize the company’s international growth. The introduction of the AliExpressLocal Marketplace allows U.S. sellers greater flexibility in pricing and marketing. The March Expo event recorded a 27% year-on-year increase in orders from U.S. small and medium-sized enterprise buyers, particularly in sports products, which saw a staggering 197% increase in sales.

Moreover, Fliggy, Alibaba’s travel subsidiary, rolled out AskMe, an AI-powered travel assistant. This tool enhances personalized travel planning by utilizing multiple intelligent agents. The travel sector in China is rebounding, with “Buy Now, Plan Later” bookings up over 20% in 2024, putting Fliggy in a prime position to capture market share.

2. Leading AI Infrastructure Accelerates Growth

Alibaba’s robust AI strategy serves as another growth driver. The Qwen AI model family has gained substantial traction, with over 90,000 derivative models created globally, positioning Qwen as a leading choice among developers. More than 290,000 users have accessed Qwen APIs via Alibaba Cloud.

A remarkable triple-digit growth rate in AI-related product revenues has persisted for six consecutive quarters, prompting Alibaba to commit to its largest long-term investment in cloud and AI infrastructure in over a decade.

Recent innovations include Accio, an AI-driven B2B search engine which attracted a million users within five months of its launch. Built on Alibaba’s Qwen large language model, Accio provides features such as Business Research and Deep Search, catering directly to sourcing decision-makers in the U.S., U.K., Germany, and France, 64% of whom plan to integrate AI by 2025.

Additionally, Ant Group, Alibaba’s affiliate, has developed a novel approach to AI model training, cutting computing costs by 20% through innovative use of both Chinese and U.S. semiconductors, thus diversifying its supplier base away from dependence on a single source like NVIDIA Corporation (NVDA).

3. Solid Financial Position and Shareholder Returns

Alibaba’s strong financial foundation and focus on shareholder returns make it a stock worth considering. The company maintains a robust net cash position of $51.9 billion, which supports strategic investments and substantial returns to shareholders.

Management has adhered to its goal of increasing shareholder value through aggressive buybacks, repurchasing $1.3 billion in shares during the December quarter alone, alongside the $10 billion bought back in the first half of the fiscal year. With a total share count reduction of 5% over nine months and $20.7 billion remaining in its buyback program through March 2027, investors may see continued improvement in earnings per share.

Additionally, Alibaba has streamlined its operations, selling non-core assets like Sun Art and Intime for proceeds totaling approximately $2.6 billion. This capital discipline, combined with strategic investments, highlights the company’s commitment to growth and enhanced shareholder returns.

Currently, Alibaba is trading at a compelling discount, presenting a noteworthy opportunity for investors.