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

Alibaba Group Holding Ltd (NYSE: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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