Alibaba At A Crossroads: 3 Analysts Weigh In On Consumption Recovery, Cloud Strategy Shifts

Alibaba Group Holding Ltd BABA shares were trading lower on Friday, after the company reported its Q2 results and Morgan Stanley removed the stock as a top pick. The results came amid an exciting earnings season.

Here are some key analyst takeaways from the earnings release.

Morgan Stanley Analyst: Gary Yu removed the stock as a top pick, maintained an Overweight rating and reduced his price target from $150 to $110 a share.

The reasons cited for the top pick removal included uncertainty around consumption recovery and cloud re-acceleration. The company has also been observed backtracking on its Cloud spin-off. This could delay the company’s cloud re-acceleration timeline, although the long-term AI thesis remains intact.

“The regulatory environment for Internet companies appears to be easing; we see Alibaba as a key beneficiary as a China proxy. Valuation remains attractive,” said the note.

Mizuho Securities Analyst: Managing Director James Lee reiterated a Buy rating with a price target of $120.

Lee sees consumption demand rebounding during the Double-11 promotion and an improving take-rate from advertising as key catalysts for the stock. Variability remains around the company’s listing plans – Cloud listing, due to uncertainties relating to the U.S. tech ban, remains a dampener.

The analyst considers BABA “an attractive turnaround story at only 5x FY25E EBITDA.”

Benchmark Analyst: Fawne Jiang maintained a Buy rating on Alibaba stock, although the price target was lowered to $150.

Jiang believes that Alibaba backing off from its Cloud spinoff affected its capital management plan. The company plans to increase ROIC by investing in core business, divesting non-core assets, and returning cash to shareholders. The user-centric approach shows early traction, but Taobao Tmall’s growth remains vulnerable. The exit of low-margin cloud services may dampen growth.

BABA Price Action: Shares of Alibaba were down 0.9% to $78.38 at the time of publication Friday.

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