Alibaba Shares: Is the E-Commerce Giant Back For Good?

TradingKeyFeb 19, 2025 1:25 AM

TradingKey - It’s been an eventful few years for investors in Chinese technology stocks. There has been mostly bad news for those holding shares of the large Internet platform companies in China.

However, more recently there have been some positive developments. One of those was news of China-based DeepSeek’s Artificial Intelligence (AI) model and its low development as well as running costs.

More specifically, though, Alibaba Group Holding Ltd (NYSE: BABA) (HKEX: 9988) has been in the spotlight given news that its founder – Jack Ma – had met with President Xi Jinping earlier this week. That bodes well for investors, who are hoping for a more conciliatory tone from the government towards China’s tech giants.

Alibaba also happens to be reporting its Q3 FY2025 earnings (for the three months ending 31 December 2024) on Thursday (20 February) before the market opens in the US. Here’s what investors need to be monitoring.

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Big run-up before earnings

The key thing to note for investors is just how much Alibaba’s shares have soared so far in 2025. So far this year, Alibaba’s Hong Kong-listed shares are up over 50% on positive developments.

First off, there was the broader positive sentiment from the DeepSeek news, which many investors believe will benefit the large platform companies in China – like Alibaba.

Then came news last week that Apple Inc (NASDAQ: AAPL) will begin using Alibaba’s AI for its iPhones sold in China. That was a big surprise as many had been expecting Apple to partner up with a more well-known AI vendor, such as Huawei.

In the end, Apple picked Alibaba to help it push its “Apple Intelligence” product on its iPhones in China – sparking a rally that saw Alibaba’s shares hit a three-year high.

Business faces challenges but could be turning around

As for Alibaba’s last Q2 FY2025 earnings that were released in November, the company only saw revenue growth of 5% year-on-year to RMB 236.5 billion (US$32.6 billion). That was down to the company’s core domestic e-commerce platforms – Taobao, Tmall, and others – posting an anaemic 1% growth for the period.

While Alibaba’s cloud unit only grew 7% year-on-year for Q2 FY2025, that was a slight acceleration from the 6% revenue growth posted in the prior quarter. There was a bright spot for Alibaba Cloud’s AI-related product revenue, which expanded at a triple-digit percentage year-on-year revenue rate.

What are Alibaba investors looking for?

In terms of expectation for Q3 FY2025, consensus expectations are for Alibaba to post revenue of RMB 278.9 billion, which would be a 7% year-on-year revenue increase. Meanwhile, earnings per share (EPS) are expected to be RMB 2.16, up over 200% year-on-year.

There are hopes for a consumer recovery in China and that will directly benefit Alibaba’s platforms. Indeed, gross merchandise volume (GMV) for Taobao and Tmall are expected to show an improvement from Q2 FY2025 given the strong showing from the annual “Double 11” shopping festival.

On the fee structure front, Alibaba introduced a 0.6% base software service fee – in September 2024 – on all Taobao transactions and this should help boost its core customer management revenue (CMR). Analysts expect this to helps unlock higher monetisation opportunities for the platform as the current take rate is lagging industry peers.

For Alibaba’s cloud business, the market is expecting to see close to 10% year-on-year revenue growth for Alibaba Cloud. If the AI cloud product can beat expectations then there could be upside to Alibaba’s current share price.

Overall, investors are looking to ride on the AI narrative from Alibaba given its stock’s already-strong run-up so far in 2025. On Thursday, should Alibaba post positive results and give upbeat guidance on the progress of AI as well as its core e-commerce business, then there could be a positive share price reaction.

However, expectations are relatively high from the market heading into the results print so investors should also be wary of entering at this price point given the strong showing of Alibaba shares in 2025.

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