Analysts see long-term upside in Alibaba despite earnings miss

Investing.com -- Alibaba Group Holdings' (NYSE:BABA) latest quarterly results prompted a negative response from investors, as shares fell 7.5%, but analysts at UBS and Morgan Stanley (NYSE:MS) reiterated their bullish outlooks, seeing long-term strength in the company’s core commerce and cloud businesses.

The Chinese e-commerce giant reported fiscal fourth-quarter revenue of RMB236.45 billion ($32.6 billion), up 7% year-over-year but slightly below consensus expectations of RMB237.91 billion. Adjusted EBITDA rose 36% to RMB32.6 billion, also a modest miss. Results were weighed down by weakness in logistics arm Cainiao and continued investment in international and local services.

A bright spot was Alibaba’s Cloud Intelligence Group, which delivered 18% year-over-year revenue growth to RMB30.1 billion. UBS noted triple-digit growth in AI-related revenue, which more than offset concerns about margin softness. “Stronger external demand post DeepSeek’s launch further reinforces cloud as a long-term driver,” analyst Kenneth Fong wrote, highlighting increased adoption of AI infrastructure services.

Morgan Stanley's Gary Yu echoed that view, calling cloud performance a key highlight of the quarter. “Cloud met our expectations and remains one of the most important parts of the Alibaba investment story, particularly as enterprise digitalization and AI adoption gain pace across China,” he said. Yu also noted that EBITA margins in cloud were impacted by timing mismatches between capex investments and revenue generation... an expected tradeoff given the segment’s current growth phase.

Fong maintained a Buy rating and $180 price target, citing stable core commerce trends and narrowing losses in non-core segments. “Taobao Tmall beat on customer management revenue by 3%, aided by improved take rates and promotional tools,” he wrote. Morgan Stanley also reiterated an Overweight rating and identical price target, with Yu emphasizing that total adjusted EBITDA came in 6% above their expectations.

Alibaba’s shares fell 7.5% in Thursday's trading following the report, reflecting investor sensitivity to headline revenue and EPS misses. Still, analysts pointed to positives, including ongoing share repurchases, a higher full-year dividend of $2 per ADS, and continued free cash flow generation, signaling that both firms see meaningful upside from current levels.

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