Alibaba's Monetization Strategy Gains Momentum, But GMV Growth Lags: Analyst

Benchmark analyst Fawne Jiang maintained a Buy rating on Alibaba Group Holding BABA with a price target of $118.

Jiang remarked that Alibaba’s latest earnings report was a mixed bag, offering encouraging signs and areas of concern. While customer management revenue (CMR) grew by 2.5% year-over-year in the second quarter, slightly surpassing expectations, general merchandise volume (GMV) showed only modest growth.

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Jiang anticipates better monetization in upcoming quarters, supported by the introduction of software service fees and increased use of the Quanzhantui marketing tool. However, subdued GMV growth raises questions about Alibaba’s ability to maintain its market share amid rising competition.

Alibaba’s second-quarter fiscal 2025 revenue reached 236.5 billion Chinese yuan, a 5% increase year-over-year but falling short of consensus estimates of 239.4 billion Chinese yuan. Adjusted EBITDA totaled 47.3 billion Chinese yuan, exceeding expectations of 46.9 billion Chinese yuan.

Notably, growth varied across segments: Taobao and Tmall Group grew by 1%, international digital commerce surged by 29%, local services rose by 14%, Cainiao logistics increased by 8%, and cloud services were up 7%. Digital media and entertainment dipped by 1%, while other segments grew by 9%.

The volatility in GMV growth reignited debates over Alibaba’s ability to defend its market position effectively. Despite management’s optimism about solid performance during the Double 11 shopping event, the decline in TTG’s EBITDA margin—down 3.2 percentage points year-over-year—signals heavy investments in diversifying supply and improving customer experience.

Jiang expects a gradual recovery, aided by consumption growth and new user acquisition via channels like WeChat Pay. Additionally, reductions in losses from non-core assets could offset margin pressure at the group level.

Jiang revised Alibaba’s fiscal 2025 and fiscal 2026 revenue estimates downward to 996 billion Chinese yuan (prior 998 billion Chinese yuan) and 1,083 billion Chinese yuan (1,089 billion Chinese yuan prior), respectively, due to a focus on improving profitability over rapid growth.

The analyst adjusted the fiscal 2025 EBITDA forecast to 198 billion Chinese yuan from a previous estimate of 205 billion Chinese yuan, factoring in increased investment in Taobao and Tmall Group (TTG).

The fiscal 2026 EBITDA projection remains essentially unchanged at 222 billion Chinese yuan.

Jiang’s price target of $118 reflects an 11.5x multiple of the projected fiscal 2025 adjusted EPS of $8.07, plus net cash per share of $24.27.

Alibaba Group Holding stock has gained over 18% year-to-date. Investors can gain exposure to the stock through Avantis Emerging Markets Equity ETF AVEM and Global X Artificial Intelligence & Technology ETF AIQ.

Price Action: BABA stock is up 0.36% at $88.91 at the last check on Monday.

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