Alibaba's Q2 Earnings Coming Up: Should You Buy or Hold the Stock?

Alibaba Group Holding Limited BABA is scheduled to report second-quarter fiscal 2025 results on Nov. 15.

For the fiscal second quarter, the Zacks Consensus Estimate for revenues is pegged at $33.47 billion, suggesting an 8.63% rise from the year-ago quarter’s reported figure.

The Zacks Consensus Estimate for earnings is pinned at $2.26 per share, indicating an increase of 5.61% from the prior-year quarter’s reported figure. The figure has moved north by 8.1% over the past 30 days.

Image Source: Zacks Investment Research

Alibaba has a mixed earnings surprise history. In the last reported quarter, the company delivered an earnings surprise of 2.73%. Its earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed the same once, the average surprise being 3.71%.

Alibaba Group Holding Limited Price and EPS Surprise

Alibaba Group Holding Limited price-eps-surprise | Alibaba Group Holding Limited Quote

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Alibaba this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

BABA has an Earnings ESP of 0.00% and sports a Zacks Rank #1 at present.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors to Focus on Ahead of Q2 Results

Alibaba’s International Digital Commerce Group appears poised for strong performance, driven by robust momentum across its key platforms. The company’s overseas e-commerce operations, particularly AliExpress, Trendyol and Alibaba.com, are likely to have benefited from strategic market investments and enhanced brand recognition.

The integration of AI technology has significantly improved the user experience through advanced features like cross-platform listings, multilingual search capabilities and personalized recommendations. This technological advancement, coupled with the AI Business Assistant, has strengthened Alibaba’s relationships with SMEs globally.

The company’s B2B cross-border trade initiatives show promising developments. The Alibaba Guaranteed platform has gained traction by simplifying international trade operations for SMEs through improved supply-chain reliability. Additionally, the introduction of Logistics Marketplace, an affordable logistics solution targeting U.S.-based SMEs, is likely to have contributed positively to the company’s international commerce metrics.

In the domestic market, Alibaba’s China commerce retail business, anchored by Taobao and Tmall Group, demonstrates resilience through strategic investments in price competitiveness and enhanced user experience. A notable development is the “Star Cube Plan,” a partnership between Taobao and Tmall Group with Douyin, leveraging Alimama and Xingtu for digital marketing. This initiative, aimed at converting Douyin users into active customers, is expected to have boosted platform traffic, although persistent macroeconomic challenges in China might have partially offset these gains.

The company’s logistics and cloud segments present mixed indicators. The Cainiao Smart Logistics Network benefits from strong domestic consumer logistics services and cross-border fulfillment solutions. While Alibaba Cloud maintains momentum in key sectors like financial services, education and automotive industries, its aggressive international pricing strategy, including up to 59% price reductions across five major categories for customers outside mainland China, might have impacted revenues despite potentially expanding market share.

When billionaires make investment decisions, the world takes notice. It's more than money; it's a statement. They choose to lead, not follow, armed with knowledge few possess. Keeping an eye on their investments is a crafty move for everyday investors.

Alphabet Inc. (GOOGL), Amazon.com, Inc. (AMZN), and Microsoft Corporation (MSFT) are among Wall Street's beloved stocks, hitting record highs recently. These tech giants boast rich histories and a penchant for innovation, attracting the attention of financial elite. Here's a closer look at why these stocks are adored by the affluent and how retail investors can emulate their strategies.

The Rise of Alphabet

Alphabet Inc. (GOOGL) stands as a tech behemoth, tracing its origins back to 1998 in Mountain View, California. Known as Google's parent company, Alphabet shines with a market cap of $2.3 trillion, driven by iconic products like Google Search, YouTube, and Android. With a focus on artificial intelligence (AI) since 2016, Alphabet leads the way in AI innovations with Google AI and DeepMind, shaping the digital landscape we inhabit today.

Recently, Alphabet hit a new high of $191.75, marking a series of peak performances. Over the past 52 weeks, GOOGL stock surged by 48.7%, eclipsing the S&P 500 Index's 25% returns during the same period.

www.barchart.com

Moreover, Alphabet declared its first quarterly dividend of $0.20 per share. This move, coupled with a forward yield of 0.42% at current levels, hints at Alphabet's investor-friendly stance.

Trading at 24.39 times forward earnings, GOOGL stock sits below its five-year average of 25.69x. The company's recent Q1 earnings exceeded expectations, with revenue climbing by 15.4% annually to $80.5 billion and EPS rising by 61.5% year over year to $1.89.

Analysts anticipate the unveiling of Alphabet's Q2 earnings after the market closes on Tuesday, July 23, with an expected surge of 27.8% in EPS year over year. Looking into the future, fiscal 2024 EPS is projected to rise by 31.2% annually to $7.61, followed by a 13.1% increase to $8.61 in fiscal 2025.

Billionaires Bullish on Alphabet

In the realm of high-stakes investments, billionaire Daniel Sundheim, heralded as the "LeBron James of investing," increased his stake in Alphabet by over 20% in fiscal Q1. His hedge fund, D1 Capital Partners, upped its holdings to 2.37 million shares, solidifying GOOGL as the fifth-largest position in D1's portfolio at 5.5%.

Meanwhile, the legendary investor George Soros, known for his unique investment approach rooted in chaos theory and reflexivity, bolstered his Alphabet holdings by acquiring 271,549 shares in Q1. This move raised his total shares to 1.5 million, accentuating Alphabet's weight in his portfolio at 3.7%.

Pershing Square’s Bill Ackman also placed his bet on GOOGL, owning 9.4 million Class C shares and 4.4 million Class A shares. Alphabet's dominance in internet search, expansion into high-growth sectors like Google Cloud, robust revenue growth, and strategic dividends make it a darling among top hedge fund managers.

www.barchart.com

With an overall "Strong Buy" rating, GOOGL has analysts' favor, with 34 recommending "Strong Buy," three suggesting "Moderate Buy," and seven opting for "Hold." The average price target for Alphabet is $198.34, indicating a potential 6.3% upside, while the Street-high target of $225 implies a 20.6% potential gain.

The Ascendancy of Amazon

At Washington-based Amazon.com, Inc. (AMZN), boasting a $2 trillion market cap, the story is one of e-commerce and tech dominance. Founded in 1994, Amazon's reach extends to entertainment with Prime Video, Amazon Music, Prime Gaming, and Twitch, showcasing its multifaceted prowess. Additionally, Amazon Web Services (AWS) holds sway in enterprise cloud software and AI, underpinning Amazon's clout across various sectors.

Amazon's stock is on a relentless upswing, climbing by 43% over the past 52 weeks, with a 26.8% rise year to date, outperforming the broader market. Notably, Amazon hit a new all-time high last week at $201.20.

www.barchart.com

Priced at 41.35 times forward earnings, Amazon's stock trades at a discount to its five-year average of 182.49x.

Technology Titans' Financial FortunesTechnology Titans' Financial Fortunes: Amazon and Microsoft Hit Stride

However, intense competition from global cloud leaders like Amazon AMZN, Microsoft and Google continues to challenge Alibaba’s cloud expansion efforts.

Price Performance & Valuation

Alibaba’s shares have gained 18.4% on a year-to-date basis, underperforming the industry, the Zacks Retail-Wholesale sector and the S&P 500 index’s return of 33.4%, 25.4% and 26.3%, respectively.

Alibaba has underperformed its peer JD.com JD, which returned 25% while outperforming PDD Holdings PDD, which lost 22.2% year to date, respectively.

Year-to-Date Price Performance

Image Source: Zacks Investment Research

It is also important to consider whether the stock’s current valuation accurately reflects the company’s long-term growth potential and ability to navigate the competitive landscape. Currently, BABA is trading at a discount with a forward 12-month P/S of 1.49X compared with the industry’s 1.8X.

BABA’s P/S F12M Ratio Depicts Discounted Valuation

Image Source: Zacks Investment Research

Investment Thesis

Alibaba presents a compelling investment opportunity ahead of its second-quarter fiscal 2025 earnings, underpinned by robust international commerce expansion through AliExpress and Trendyol, enhanced by AI integration and strengthened SME relationships. The company’s domestic e-commerce business benefits from strategic partnerships, notably the Douyin collaboration, while its logistics segment shows promising growth through Cainiao’s expanding services. Alibaba Cloud’s aggressive pricing strategy and strong sector-specific momentum, particularly in the financial services and automotive industries, position it for potential market share gains. Despite macroeconomic headwinds in China, the company’s diversified revenue streams and strategic initiatives across multiple segments support a positive growth trajectory.

Conclusion

Ahead of Alibaba’s second-quarter fiscal 2025 earnings report, investors should consider establishing positions given the company’s compelling growth catalysts across international commerce, cloud services and logistics segments. The strategic integration of AI technology, expanding global footprint through platforms like AliExpress and Trendyol, and aggressive cloud pricing initiatives demonstrate Alibaba’s commitment to market share expansion and revenue diversification. Despite Chinese macroeconomic challenges, the company’s robust ecosystem development, strategic partnerships, including the Douyin collaboration, and focus on SME relationships position it favorably for sustained growth, making current price levels an attractive entry point for long-term investors.

7 Best Stocks for the Next 30 Days

Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers “Most Likely for Early Price Pops.”

Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention.

See them now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 5 Stocks Set to Double. Click to get this free report