Shifting Tides: Alibaba’s Strategic Inflection Amid Tariff Turbulence

Investment Summary

• Strong Core Business & Improving Profitability: Alibaba's core commerce platforms (Taobao, Tmall, etc.) continue to dominate Chinese e-commerce, driving huge cash flows. Fiscal 2024 revenue grew 8% YoY to ¥941,168 million, and operating income rose 13% to ¥113,350 million. Net income attributable to shareholders reached ¥79,741 million in FY2024 (up 10% YoY), reflecting improved margins.
• Sum-of-the-Parts (SOTP) Undervaluation: We value Alibaba's businesses on a sum-of-parts basis entirely in RMB. Our analysis indicates the market is undervaluing key segments (especially Cloud and International commerce) relative to peers. We estimate Alibaba's total equity value at ~¥2.2 trillion, above the current market cap of ~¥2.0 trillion (≈US$278 billion at 7.2 RMB/USD), suggesting upside potential.
• Restructuring & Catalysts: Alibaba's ongoing business restructuring into six major units (Cloud Intelligence, Taobao Tmall Commerce, Local Services, Cainiao Logistics, Global Digital Commerce, Digital Media/Entertainment) unlocks value and agility. Planned spin-offs/IPOs (e.g. Cainiao) and the announced two-part cash dividend (regular + special, totaling ~US$4.0 billion), along with aggressive share buybacks (~US$12.5 billion in FY2024), are positive catalysts to drive shareholder value.
• Risks: Key risks include Chinese regulatory scrutiny, intense competition (from JD.com, PDD Holdings' Pinduoduo, and global players like Amazon), and macroeconomic headwinds in consumer spending. However, Alibaba's financial strength (net cash >¥130 billion and FY2024 free cash flow ~¥156 billion) provides resilience and capacity to invest through cycles. We maintain a Buy rating, expecting these strengths to outweigh the risks.

Company Overview

Alibaba Group is China's largest e-commerce and cloud computing company, with a mission "to make it easy to do business anywhere." The company operates a comprehensive digital ecosystem of consumer services: e-commerce marketplaces, logistics, cloud computing, local services, digital media, and fintech via affiliate Ant Group. Alibaba's reporting currency is the Renminbi (RMB), reflecting its primarily China-based operations. All Alibaba financial figures in this report are in RMB (¥) unless otherwise noted.

Business Segments

Alibaba reorganized into six major business groups in 2023 to unlock value and increase flexibility:

• China Commerce (Taobao & Tmall Group): Alibaba's core online retail platforms in China, accounting for over 65% of revenue. These platforms had FY2024 gross merchandise volume (GMV) in the trillions of RMB and generate high-margin advertising and commission revenue. The China commerce segment remains the primary profit engine, with FY2024 commerce EBITDA (earnings before interest, taxes, depreciation, amortization) estimated around ¥180 billion. The segment's resilience is evident despite China's macro slowdown – domestic commerce revenue grew modestly and maintained healthy margins in FY2024.
• International Commerce: Platforms like Lazada, AliExpress, Trendyol, and Daraz, serving Southeast Asia, Europe, and other markets. International retail commerce is a smaller portion (~8% of revenue) but growing. Alibaba's international commerce revenue was roughly ¥61 billion in FY2024 (driven by Lazada's recovery and cross-border demand). This segment is not yet profitable overall due to heavy investments, but losses have been narrowing.
• Local Services: Includes food delivery (Ele.me) and mapping/navigation (Amap). Local consumer services contributed ~¥43 billion revenue in FY2024, but continued to operate at a loss due to competition (e.g. Meituan) and expansion investments. Alibaba is focusing on improving unit economics in food delivery and leveraging its ecosystem (Alipay, Taobao integration) to drive synergies in this segment.
• Cainiao Smart Logistics: Alibaba's logistics arm offers domestic and international delivery, warehouse, and supply chain solutions. Cainiao's FY2024 revenue was approximately ¥66 billion (about 7% of total revenue) as it handles fulfillment for Alibaba merchants and external clients. Cainiao achieved profitability at the EBITA level, and Alibaba has announced plans for a partial IPO of Cainiao (logistics unit) which could unlock value and raise capital for expansion.
• Cloud Intelligence (Alibaba Cloud): China's largest cloud computing provider (also includes DingTalk enterprise software and AI initiatives). Alibaba Cloud's revenue in FY2024 was about ¥85–90 billion (roughly 9% of total sales), growing in the low teens YoY as enterprise demand recovers. Cloud segment operating profit improved significantly, hitting ¥? (the company has not disclosed full-year cloud EBIT, but the margin turned positive). Alibaba Cloud faces strong competition from Tencent Cloud and Huawei Cloud domestically, and AWS, Azure globally, but is a critical long-term growth driver. Notably, Alibaba announced a ¥380 billion investment plan over three years in cloud and AI infrastructure to solidify its technological lead.
• Digital Media & Entertainment: Encompasses streaming video (Youku), music, movies, games, and other media. This segment is a small part of revenue (~¥28 billion in FY2024) and remains marginally unprofitable. Alibaba has been rationalizing spending here to focus on core commerce and cloud, though these media properties add strategic value by keeping users within Alibaba's ecosystem.

Strategic Restructuring

In March 2023, Alibaba announced a major organizational overhaul, splitting into the above six business groups with potential to independently raise funds or list in the future. This move is intended to unlock the sum-of-parts value of Alibaba's diverse businesses and foster a more agile, startup-like culture in each unit. Early signs are positive: for example, Cainiao raised external funding at an implied valuation reportedly above ¥100 billion, and Alibaba Cloud is exploring an IPO or spin-off. The parent company will evolve into a holding company, and investors may eventually directly hold stakes in the spun-out units, potentially realizing value currently hidden within Alibaba's conglomerate structure.

Competitive Position

Alibaba's China commerce business enjoys a wide moat with over 900 million annual active consumers and a leading share in e-commerce, but competition is increasing. JD.com (direct online retail) and Pinduoduo (social commerce) are fierce domestic rivals. Pinduoduo, in particular, has seen rapid user growth and monetization, with FY2024 revenue soaring 59% to ¥393.8 billion, albeit still much smaller than Alibaba. Global platforms like Amazon and ByteDance (Douyin/TikTok e-commerce) also seek to capture market share in China and overseas. In cloud computing, Alibaba Cloud is a distant fourth globally behind Amazon AWS, Microsoft Azure, and Google Cloud, but leads in Asia-Pacific. Alibaba's ability to innovate (e.g. integrating AI like its Tongyi Qianwen large language model into products) and leverage its ecosystem (commerce data feeding AI, etc.) will be key to fending off competition.

Financial Performance (in RMB)

Alibaba's financials remain robust, characterized by high revenue scale, improving profitability, and strong cash generation. The table below summarizes key financial metrics for the past two fiscal years (ended March 31):

Notes: FY2023 Free Cash Flow was exceptionally high due to one-time working capital benefits; FY2024 normalized FCF (~¥156bn) remains strong, supporting ongoing buybacks and investments. EPS is on a diluted basis, and one ADS = 8 ordinary shares.

Revenue

Fiscal 2024 revenue was ¥941.2 billion, an 8% increase from ¥868.7 billion in FY2023, rebounding from the mere +2% growth of the prior year. The acceleration was driven by China commerce stabilization (mid-single-digit growth as consumer sentiment improved in late 2023) and strong expansion in newer segments like international retail and cloud. Notably, International commerce revenue grew about 18% YoY in RMB (helped by Lazada's double-digit growth), and Cloud revenue returned to double-digit growth (about +12% YoY in FY2024) after a slower FY2023. Meanwhile, Local services saw ~20%+ growth as Ele.me food delivery volumes picked up post-pandemic. These offsets helped overcome flat/declining digital media revenue.

Profitability

Alibaba's operating income reached ¥113.35 billion in FY2024, up 13%. The operating margin improved slightly to 12.0%. This margin expansion was achieved despite investments in strategic areas, thanks to cost efficiencies and lower losses in loss-making segments. For example, the Digital Media segment's losses narrowed after cutbacks in content spend, and Cainiao's profitability improved. Net income attributable to shareholders grew 10% to ¥79.74 billion, even as FY2024 included some one-time impairment and investment losses (Alibaba took write-downs on certain equity investments). Excluding non-cash charges, adjusted (Non-GAAP) net income was ¥133.0 billion in FY2024, up 12% YoY, indicating the core earnings power growth.

Cash Flow & Balance Sheet

Alibaba remains a cash machine. Operating cash flow in FY2024 was around ¥208 billion (roughly 22% of revenue), and free cash flow was ¥156 billion (after ¥52 billion in capital expenditures mainly for cloud data centers and logistics). The company has net cash (excess cash over debt) of over ¥130 billion as of Sep 2024, providing ample liquidity. In FY2024, Alibaba returned significant cash to shareholders via share repurchases – spending ~US$12.5 billion (¥90 billion) to buy back stock. This reduced the share count by ~5%. Additionally, Alibaba declared its first-ever cash dividend in 2024 (totaling ~¥27 billion for the regular + special dividend combined), signaling confidence in its cash generation.

Looking ahead, Alibaba's management has guided for a continued focus on profitability. Cost optimization in areas like cloud (shutting down loss-making overseas cloud units) and streamlined operations post-restructuring are expected to support margins. We forecast mid-single-digit revenue growth in FY2025 (given the still-recovering Chinese economy), with operating leverage driving a low-teens percentage increase in operating profit (excluding any investment gains/losses). The balance sheet strength also gives Alibaba strategic optionality – it can afford strategic acquisitions, increased buybacks, or withstand regulatory fines if any arise.

Valuation

We utilize a Sum-of-the-Parts (SOTP) valuation for Alibaba, valuing each business segment independently in RMB, and then summing to arrive at an implied total equity value. This approach is appropriate given Alibaba's conglomerate structure and the planned separation of business units. All segment valuations are based on FY2024 financials and peer multiples, and Alibaba's segment data is in RMB (peers are shown with their native currency and RMB equivalent for reference).

Sum-of-the-Parts Valuation (in RMB)

SOTP Implication

Our SOTP analysis yields an equity value of approximately ¥3.1 trillion for Alibaba. After dividing by shares outstanding, this equates to roughly ¥146 per ordinary share. Each NYSE-listed BABA ADR represents 8 ordinary shares, implying a value of about US$125 per ADR at 7.2 RMB/USD. This is significantly above the current BABA stock price (around US$100/ADR in early April 2025, or ~¥116 per share). The valuation gap suggests ~25% upside potential. The core commerce segment contributes the bulk of valuation (≈58% of total) in our model, but importantly, the cloud business and logistics are together ~22% of SOTP value – a sign that these emerging units are meaningful drivers of Alibaba's valuation. If Alibaba executes planned IPOs (e.g. Cloud or Cainiao), those market valuations could unlock value closer to our SOTP estimates.

We cross-check our SOTP with a simplified DCF (Discounted Cash Flow) and market multiples: Alibaba trades at ~10x forward P/E and ~7x EV/EBITDA (using RMB figures), a discount to global peers. For instance, Amazon trades ~15x EV/EBITDA, and Chinese peer Pinduoduo (with higher growth) trades at ~17x forward earnings. This relative undervaluation underscores our bullish view, as Alibaba's improving earnings and capital returns (buybacks, dividends) warrant a multiple re-rating closer to peers.

Scenario Analysis: Bear, Base, and Bull Cases

To account for uncertainties, we model three scenarios for Alibaba's 12–18 month outlook, with all values in RMB. The base case underpins our target price, while bear and bull cases illustrate downside/upside around that base.

• Bear Case (¥120 per share, –18% vs current): In a pessimistic scenario, macroeconomic recovery falters and consumer spending stays weak. FY2025 revenue growth slows to low single digits (~3%), and margin gains stall due to competitive discounting and higher costs. Regulatory pressures could also weigh on sentiment. We assume core commerce EBIT flat and cloud growth decelerates. Under these conditions, our SOTP would drop to ~¥2.0 trillion equity value (~¥120/share). This implies BABA would trade around 8x forward earnings – an even deeper discount, likely only if investors price in prolonged stagnation or political risks.
• Base Case (¥146 per share, +10% vs current): This scenario reflects our core assumptions and yields ~¥146/share intrinsic value (≈US$125/ADR). We assume mid-single-digit revenue growth (~6% in FY2025) and ~100 bps operating margin expansion (from continued cost control and mix shift to higher-margin businesses). Core commerce remains resilient, cloud accelerates to ~15% growth as AI adoption drives demand, and losses in smaller segments gradually narrow. The result is mid-teens EPS growth. The ¥146/share valuation corresponds to about 12x forward earnings, still below historic averages, which we view as reasonable given modest growth but lower risk after restructuring.
• Bull Case (¥180 per share, +40% vs current): In an optimistic scenario, China's consumer rebound is stronger and Alibaba executes exceptionally well on spin-offs and technology. Revenue growth could reaccelerate to ~10% (with China e-commerce regaining share and international booming ~30% YoY). Operating leverage plus cloud profitability improvements push operating margin to ~15%. Additionally, successful IPOs of Cainiao or Cloud might crystallize higher market values than our conservative estimates (e.g. if Cloud is valued closer to 8x revenue like global peers). In this case, our SOTP would imply ~¥180 per share. This equates to ~15x forward earnings, which could be justified by a return to double-digit growth and improved investor sentiment.

Probability-weighted, we give higher weight to the base case and some to the bull case (due to catalysts in play), leading to our target price roughly in line with the base case. Thus, we set a 12-month price target of US$120 per ADR (≈¥140 per share), which is slightly below the base case intrinsic value to account for lingering uncertainty. This still offers a healthy upside from current levels, and we recommend investors Buy Alibaba at current prices.

Peer Comparison (Global Context in RMB and USD)

Alibaba's valuation and financial profile can be contextualized by comparing with both Chinese and global e-commerce/cloud peers. Below we highlight key metrics for Alibaba versus major peers, with figures in their reporting currency and (in RMB for consistency).

• Amazon (US): The world's largest e-commerce and cloud provider. Amazon's 2024 revenue was US$638.0 billion (≈¥4.59 trillion at 7.2 FX). This is ~4.9× Alibaba's revenue, reflecting Amazon's global reach and AWS cloud dominance. Amazon grew 11% in 2024 and earned US$59.2 billion net income (≈¥426 billion), a net margin of ~9.3%. By contrast, Alibaba's net margin is ~8.5%. Amazon's market cap is ~US$1.3 trillion (¥9.36 trillion), implying ~22x P/E. Alibaba at ~10x P/E appears cheap relative to Amazon, although Amazon's business mix (especially high-margin AWS contributing operating income of $39.8b) justifies a premium.
• JD.com (China): Alibaba's closest domestic rival in e-commerce (more focused on direct online retail and logistics). JD.com's full-year 2023 revenue was ¥1,084.7 billion (US$152.8 billion), about 15% higher than Alibaba's FY2024 revenue – largely because JD sells products directly (recording the full GMV as revenue) whereas Alibaba mainly records marketplace fees. JD's growth in 2023 was +3.7%, slower than Alibaba's, due to a strategy of emphasizing profitability over scale. JD's net profit in 2023 was ¥24.2 billion, but jumped to ¥41.4 billion in 2024 (US$5.8 billion), as cost efficiencies took hold. JD trades at ~15x forward earnings and has a market cap around US$55 billion (¥400 billion). Alibaba outperforms JD on profitability (net margin ~8% vs ~3.6% for JD in 2023), while JD surpasses Alibaba on revenue scale. We believe Alibaba's higher-margin platform model merits a higher valuation multiple, and its recent initiatives (e.g. Taobao Live, community group-buy) defend its competitive moat against JD.
• Pinduoduo – PDD Holdings (China): A fast-rising third player in China's e-commerce. Pinduoduo's platform focuses on interactive, value-for-money shopping and rural consumers. In 2024, PDD's revenue reached ¥393.8 billion (US$53.96 billion), still less than half of Alibaba's, but it achieved a remarkable +59% YoY growth. PDD's operating profit was ¥108.4 billion in 2024 – astonishingly close to Alibaba's – yielding a very high margin (~27%) driven by low marketing spend and high ad monetization. PDD's net income hit ¥58.7 billion in 2023 (up 93% YoY) and likely around ¥80+ billion in 2024 (surpassing Alibaba's net profit). Investors have rewarded this performance: PDD's market cap is ~US$145 billion (¥1.04 trillion), valuing it at ~18x earnings – higher than Alibaba's multiple. The market is pricing in Pinduoduo's superior growth trajectory. However, PDD's heavy reliance on merchant subsidies and a narrower core business (only low-end retail) could limit its long-term scalability relative to Alibaba's diversified ecosystem. Alibaba is responding by revamping Taobao to be more engaging and value-oriented, and by launching its own discount app (Taobao Deals) to combat PDD.
• Global Cloud Peers: Alibaba Cloud, with roughly US$12 billion in annual revenue, is much smaller than Amazon AWS (US$107.6 billion in 2024 sales) and Microsoft Azure (estimated US$65 billion in 2024 revenue). Alibaba Cloud's EBITDA margin is only just above break-even, whereas AWS operates at ~37% operating margin. This gap shows in valuations: pure-play cloud businesses command high multiples (AWS is ~35% of Amazon's value). If we value Alibaba Cloud at ~5x sales (~¥425 billion as in SOTP), it's about 14% of Alibaba's total value – a smaller contribution than cloud peers to their parent companies. Successful expansion of cloud services and AI offerings could lead to a higher valuation for Alibaba Cloud, closing this gap.

In summary, Alibaba trades at a significant discount to both global and Chinese peers on most metrics, despite comparable or superior profitability. The market's hesitance is likely due to China-specific risks (regulation, geopolitical) and Alibaba's past year of slower growth. We believe these factors are now easing: regulatory fines are paid, the business is refocused, and consumer demand is recovering. Thus, the peer comparison supports our view that Alibaba is undervalued – a rerating is plausible if Alibaba delivers mid-single-digit growth and executes the spin-off plan, moving its multiples closer to peers.

Key Risks

Investing in Alibaba is not without risks. We outline the main risk factors and our view on their impact:

• Regulatory and Political Risk: Alibaba has faced intense regulatory scrutiny in China. In 2021 it paid a ¥18.2 billion antitrust fine and had its fintech affiliate Ant Group's IPO halted. There is ongoing risk of further regulations on tech platforms, data security requirements, or government influence (e.g. state entities taking golden shares in key businesses). Geopolitical tensions (U.S.–China relations) also pose risk; for instance, potential U.S. restrictions on investment in Chinese tech or delisting concerns (although Alibaba has maintained compliance with U.S. audit requirements so far). These risks could constrain Alibaba's operations or dampen investor sentiment. We factor this into our valuation via conservative segment multiples. Continued compliance and proactive engagement with regulators (as Alibaba has been doing) will be critical to mitigate this risk.
• Macro & Consumer Spending in China: Alibaba's fortunes are tied to Chinese consumption. Economic slowdowns, such as the COVID-impacted 2020–2022 period and the property market downturn in 2023, directly hit retail spending and SME advertising budgets. If China's economic recovery falters (due to new COVID waves, global recession, etc.), Alibaba's commerce growth could stagnate or decline. That said, Alibaba's business proved relatively resilient even in tough times – consumers tend to seek discounts online during downturns, and Alibaba's scale allows it to outperform smaller rivals. We remain cautiously optimistic on China's consumer outlook, with recent government stimulus and reopening tailwinds supporting growth.
• Competition: The competitive environment is arguably the biggest ongoing threat to Alibaba's market share. Domestically, JD.com competes on logistics and service, Pinduoduo on price and engagement, and Douyin (TikTok) has entered e-commerce via livestreaming, siphoning some apparel sales. Internationally, Alibaba's expansion (e.g. Lazada in SE Asia) pits it against Sea's Shopee and Amazon. In cloud, aggressive moves by Huawei and Tencent in China and by AWS/Azure in Asia challenge Alibaba Cloud's growth. Heightened competition can lead to merchant fee reductions, higher marketing spend, or loss of talent. Alibaba is responding by innovating (e.g. Taobao Live, Taobao Deals, integration of Douyin-like content), investing in logistics (making Cainiao a competitive advantage), and focusing on customer experience. Its broad ecosystem (commerce, payments, delivery) provides competitive synergies that peers cannot easily replicate, which we believe helps maintain its leadership.
• Execution of Restructuring: The plan to split into six units is bold and complex. There are risks around execution – e.g. disruption of integrated operations, loss of scale synergies, or infighting among units. Each business will have its own CEO and possibly external investors, which could alter priorities. If not managed well, this could impact Alibaba's cohesive strategy (e.g. if Cloud unit pursues external customers at the expense of internal integration with commerce). Moreover, if anticipated IPOs (Cainiao, Cloud) do not materialize timely or at good valuations, the market might view the restructuring as a disappointment. Alibaba's top management has addressed this by staying as a holding company overseeing strategy (with Daniel Zhang initially leading Cloud unit, and Joe Tsai as Executive Vice-Chairman coordinating overall structure). Thus far, investor reaction to the restructuring has been positive, but we will monitor execution closely.
• Foreign Exchange and Listing Risk: Alibaba reports in RMB and has a secondary listing in Hong Kong (9988 HK) in HKD. For international investors in the U.S. ADR, currency fluctuations (USD/HKD/RMB) can affect returns. We assume a stable ~7.2 RMB/USD, but a significant RMB depreciation could reduce the ADR's USD value even if the underlying business is stable. Additionally, while Alibaba has mitigated near-term U.S. delisting risk by complying with audit transparency, any resurgence of that issue (under the Holding Foreign Companies Accountable Act) could weigh on the U.S. stock. Alibaba's Hong Kong listing provides a safety net in that event.

Despite these risks, we note that Alibaba's management has taken a proactive stance: cutting costs, restructuring, settling regulatory issues, and returning cash to shareholders – all moves that help reduce risk levels. We have incorporated a margin of safety in our valuation (e.g. conservative peer multiples, scenario analysis) to account for these uncertainties.

Catalysts & Upcoming Events

Several catalysts could unlock value in Alibaba and drive the stock closer to our price target:

• Spin-offs and IPOs: Materialization of the promised business unit IPOs in the next 12–18 months would be a significant catalyst. A Cainiao (logistics) IPO is expected first (possibly in Hong Kong), allowing the market to independently price Cainiao – we suspect an IPO valuation could exceed ¥200 billion, versus the ¥164 billion value we ascribed (after 20% holdco discount). Similarly, any concrete progress toward an Alibaba Cloud spin-off or IPO (even if a minority stake listing) would force investors to value the Cloud segment on a sum-of-parts basis; given cloud's high growth and strategic importance (especially with AI), it could attract a rich valuation (our model is conservative at 5x sales). These actions would also inject cash into Alibaba (if proceeds from partial spin-offs are raised), potentially used for more buybacks or investment in core areas.
• Share Buybacks/Dividends: Alibaba's board has authorized a large share repurchase program (US$25 billion over 2022-2025, with ~US$20.7 billion remaining as of Dec 2024). The company has been actively buying shares – we expect continued repurchases given the stock's depressed valuation. This provides a steady buying flow and increases EPS by shrinking the float. Additionally, the initiation of a cash dividend in 2024 (annual regular dividend of US$0.125 per share plus special US$0.0825 per share in 2024) signals a new shareholder return policy. While Alibaba's dividend yield is small (~1%), the establishment of a dividend (and potential growth of it) could attract a new class of investors and support the stock price.
• Recovery in Consumer Spending: Any signs of a stronger-than-expected rebound in Chinese consumption (e.g. robust quarterly retail sales data, favorable government policies such as stimulus or consumption vouchers) would directly benefit Alibaba's commerce revenue. Key upcoming indicators include China's Golden Week sales, Singles' Day (11.11) shopping festival performance, and quarterly earnings trends for discretionary consumption. If Alibaba can post high-single or double-digit GMV growth in a quarter, it would mark an inflection from the doldrums of 2022–23, likely prompting a re-rating of the stock. Our base case already assumes moderate improvement; an upside surprise here feeds into our bull case.
• Ant Group Resolution: Alibaba owns a ~33% equity stake in Ant Group (which operates Alipay and other fintech services). Ant's halted IPO in 2020 has been a sore point. Recently, Ant has undergone restructuring and reportedly won regulatory approval to raise ¥10.5 billion for its consumer finance unit, seen as progress toward resolving outstanding issues. A revival of Ant Group's IPO (even at a valuation far below the originally planned US$300 billion) could be a psychological boost and add to Alibaba's NAV. Even absent an IPO, if Ant starts paying regular dividends to shareholders once regulatory fines and capital requirements are settled, Alibaba could see a cash inflow (Ant reportedly earned ~¥17 billion net in 1H2023). Any clarity on Ant's situation in 2025 would remove a long-standing overhang on Alibaba's stock.
• Improved International Performance: Growth or strategic moves in overseas markets can unlock new value. For example, Alibaba's Lazada unit (in Southeast Asia) is targeting profitability by 2025; success there could lift segment margins. Alibaba's recent foray with Aliexpress into Spain/Brazil and expansion of Trendyol in Turkey/Europe – if these ventures show traction, investors may start assigning value to Alibaba's international segment (which currently is often undervalued by analysts due to losses). Likewise, Alibaba's investment in Turkey's Trendyol (which hit US$16.5 billion valuation in 2021) and others are underappreciated assets that could be monetized.
• Tech & AI Leadership: Alibaba's push into generative AI and cloud services (e.g. launching its large language model Tongyi Qianwen and integrating it into Alibaba Cloud offerings) can be a catalyst if it translates into tangible financial results. For instance, winning big cloud contracts or seeing a surge in cloud usage from AI applications would validate Alibaba's heavy R&D investment. Any announcements around AI breakthroughs, cloud customer wins, or even partnerships (perhaps with global tech companies using Alibaba Cloud's infrastructure in Asia) could improve sentiment, as it showcases Alibaba not just as an e-commerce play but as a tech leader.

Monitoring these catalysts is crucial. We expect news flow on several fronts (asset IPOs, macro data, quarterly earnings) in the coming year. Alibaba's management commentary in upcoming earnings calls will be key to gauge progress (especially on restructuring timeline and capital allocation). In our view, the current stock price offers a favorable risk-reward before these catalysts potentially materialize.

Conclusion and Recommendation

Alibaba is at a strategic inflection point. After navigating a challenging period of regulatory crackdowns and slowing growth, the company has repositioned itself for a new chapter – breaking up the monolith, refocusing on core competencies, and returning cash to shareholders. The financial foundation is solid: Alibaba generates over ¥150 billion in free cash flow annually and sports double-digit earnings growth, all while trading at a fraction of global peer valuations. The market's skepticism (rooted in China's macro and policy concerns) presents an opportunity for long-term investors. With an improving economic backdrop and clear value-unlocking catalysts ahead, we believe Alibaba's stock has substantial upside.

We maintain a Buy rating on Alibaba Group with a 12-month target price of US$120 per ADR, equivalent to ~¥140 per share or ¥2.9 trillion in market cap. This target is underpinned by our base-case SOTP valuation and implies a forward P/E of ~12x – still a discount to peers, reflecting a prudent stance on risks. The current market price around US$100 (¥116/share) offers ~20% appreciation potential to our target, plus a modest 1% dividend yield.

In our view, Alibaba's risk/reward profile is highly attractive at present. Downside risks (regulatory, competition, macro) are real but appear manageable and largely priced-in, whereas upside drivers (restructuring benefits, potential spin-offs, consumer recovery) are not fully appreciated by the market. Investors with a 1-2 year horizon could be rewarded as the sum-of-parts story materializes and sentiment on Chinese tech improves. Given its dominant franchise and renewed strategic focus, Alibaba remains a top pick in the China/Asia Internet sector for exposure to the long-term growth of the digital economy. We recommend accumulating shares at current levels.

Sources: All Alibaba financial data in RMB are from the company's official filings and reports (SEC Form 20-F, FY2023-2024 earnings releases). Peer data sourced from respective annual reports and filings: Amazon, JD.com, Pinduoduo (PDD). Exchange rate of 7.2 RMB per USD used for conversions as specified. All units are clearly stated (RMB millions or billions). This report is for informational purposes and reflects analysis as of April 2025.