US Stock Earnings Preview: Can Alibaba Surpass Expectations and Sustain Its Share Price Surge?

Alibaba Group Holding Limited (BABA), a prominent Chinese tech giant trading in the US market, is set to unveil its Q3 fiscal 2025 earnings before the market opens on February 20th, Eastern Standard Time.

 

Wall Street's top investment banks are bullish on Alibaba's upcoming report, predicting that the company will outperform market expectations. Investor sentiment, as gauged by recent market surveys, also suggests a strong belief that Alibaba's share price will continue its upward trajectory post-earnings release, prompting some to consider early investment opportunities.

 

Today, we'll delve into the story of Alibaba, a global powerhouse among Chinese stocks listed in the US.

 

 

In the previous quarter, Alibaba reported revenues of CNY 236.503 billion, marking a modest 5.21% year-over-year increase. Adjusted net profit, however, took a hit, dropping 9.13% year-over-year to CNY 36.518 billion. Both figures fell short of Bloomberg's consensus estimates, which were already on the conservative side.

 

The release of these lackluster results sent Alibaba's US-listed shares into a tailspin, with the stock opening lower and continuing to decline in the following days.

Two primary factors contributed to this underperformance. First, Taotian Group, Alibaba's core e-commerce division responsible for platforms like Taobao, Tmall, Tmall Global, and Tmall Supermarket, has yet to regain its former glory.

 

Despite remaining Alibaba's largest business segment, Taotian's revenue share dipped below 40% last quarter, and growth has remained elusive.

 

Second, while Alibaba Cloud demonstrated robust growth, with revenues climbing 7% year-over-year to CNY 29.610 billion and adjusted EBITA surging 89% to CNY 2.661 billion, these gains were offset by substantial increases in R&D and marketing expenses.

 

Alibaba Cloud has been a bright spot, driving the group's growth for four consecutive quarters, fueled by strong demand for its AI-related products, which have seen triple-digit year-over-year growth for five straight quarters.

 

However, the company's aggressive investment in technology and marketing—with R&D expenses rising 10.82% year-over-year to CNY 12.425 billion and marketing expenses jumping nearly 30% to CNY 31.922 billion—meant that higher revenues didn't translate into proportionate profit growth.

 

 

Recent developments suggest that Alibaba may be turning a corner. The meteoric rise of DeepSeek, a Chinese AI startup, has put the spotlight on Alibaba Cloud's robust computing capabilities.

 

DeepSeek's success has highlighted two key trends. First, as the cost of large-scale model training decreases and more businesses and individuals enter the AI space, demand for cloud-based computing power and infrastructure in China is expected to soar, benefiting Alibaba Cloud as a leading provider.

 

Second, DeepSeek's global popularity, ranking first in the iOS app store in over 100 countries and regions during the Chinese New Year period and surpassing ChatGPT in downloads, has bolstered confidence in China's AI prowess.

 

Alibaba Cloud has capitalized on this momentum, launching the Tongyi Qwen2.5-Max model on January 29th. Built on a MoE (Mixture of Experts) architecture and trained on over 20 trillion tokens, the model has ranked seventh globally on the ChatBot Arena benchmark, outperforming competitors like DeepSeek-V3 and o1-mini while achieving high performance with lower resource consumption.

 

In addition, Alibaba's recent partnership with Apple, announced by Chairman Joe Tsai, has further enhanced the company's reputation in the AI space. The collaboration, which aims to integrate Alibaba's AI capabilities into Apple's ecosystem, has been well-received by investors, driving Alibaba's share price higher.

 

 

Beyond its cloud business, Alibaba's international operations are also poised for growth. Analysts are closely watching the performance of AliExpress, Alibaba's global e-commerce platform, and Trendyol, its Turkish subsidiary.

 

With Alibaba's significant investments in the European and Gulf markets, the company's international segment is expected to maintain its growth trajectory. The recent implementation of the global AliExpress model, which uses local inventory to improve delivery times, is likely to further boost the performance of the international division.

 

Alibaba's collaboration with Apple represents a significant strategic move for both companies. By integrating Alibaba's AI capabilities into Apple's ecosystem, the partnership aims to enhance the user experience for Chinese iPhone users and potentially drive sales of Apple products in the world's largest smartphone market.

 

The market has responded positively to the news, with Alibaba's share price continuing to climb. Analysts expect Alibaba's management to provide more details on the partnership and other strategic initiatives during the earnings call, as the company aims to solidify its position in the rapidly evolving tech landscape. The current rally in Alibaba's share price reflects the market's optimism about the potential benefits of this strategic alliance.

 

 

Alibaba finds itself at a crossroads, with its stock price on a tear following recent positive developments. The company's strategic partnership with Apple and founder Jack Ma's high-profile participation in a private entrepreneurs' meeting with Chinese leaders have generated significant buzz.

From a valuation perspective, Alibaba's trailing P/E ratio of 24.33x is not inexpensive, especially considering the company's recent performance challenges. However, the market's optimism is reflected in the stock's technicals, with the share price rebounding strongly from support at $79.90 and reaching a near three-year high of $126.9, up 56.8% in just one month.