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Alibaba's Financial Performance: Is Now the Right Time to Invest?

Updated: May 8

The author Jázmin Lászik of the article:"Alibaba's Financial Performance: Is Now the Right Time to Invest?".

Publication date: 30.10.2023

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Alibaba is one of the world’s biggest online commerce companies. In this article, we’re going to discuss both positive and negative indicators that could influence Alibaba’s performance.

The Alibaba Ecosystem

Picture: The Alibaba Ecosystem Source: Alibaba Group

Reasons to Consider Investing in Alibaba:

1. Diverse Business Segments

Their biggest business segments are China Commerce, International Commerce and Local Consumer Services. Their primary business is to offer a digital place where buying and selling goods is made easier. Over the years they’ve expanded their segments and now their operations include cloud computing, digital media and entertainment as well. This diversification can help mitigate risks associated with a single business segment.

2. Growing Middle Class in China

The expanding middle class in China (2022 GDP per capita of approximately $12,000) suggests substantial growth potential for Alibaba. This is because the increased consumer spending can drive its e-commerce and other services.

3. Positive Financial Indicators

The recent financial performance indicators, such as revenue, net income, and EBITA, show significant growth. The increase in free cash flow and positive trends in most profit margins are also positive signs.

In 2023, its market capitalization stood at $214 billion. Let’s look at their last announced quarter, in June of 2023. Their revenue increased by 14% , net income increased by 63% . The adjusted EBITA (Earnings Before Interest, Tax and Amortization) increased 32% year-over-year. Income from operations increased by 70%.

Free cash flow also increased by 70%. All segments profit margins improved except e-commerce (which was flat). Users on the Taobao app are up by 6% every month since april.

4. Appealing Valuation

P/E ratio of 17.9 may suggest that Alibaba's stock is undervalued, which could provide room for potential growth.

5. Low Beta

With a Beta of 0.75, Alibaba's stock is less volatile than the overall market, which can be appealing for investors seeking relative stability. If the market goes up or down by a certain percentage, the asset's price is expected to move in the same direction but by a lower percentage.

6. Price Increase

The 9.3% increase in Alibaba's share price over a year is another indicator of positive performance.

Aspects Requiring Cautious Evaluation

1. US-China Tensions

The risk of delisting in the US due to geopolitical tensions between the US and China could pose a significant risk to Alibaba's stock.

2. Competition

The heightened competition from other tech giants can put pressure on Alibaba's market share and profitability.

3. Stock Price Decline

The significant drop in the stock price from its peak in 2020 raises questions about the stock's performance and recovery potential.

4. Economic Challenges

Factors such as the COVID-19 pandemic, youth unemployment, and Chinese housing issues have impacted the Chinese economy. Therefore, they may continue to affect Alibaba's business.

5. Dividend Policy

Alibaba's decision to refrain from distributing dividends in favor of business expansion may not align with the income needs of some investors.

The Technical of BABA stock

Alibaba's share price has completed a full market cycle, returning to its initial public offering (IPO) price from 2015. Over the years, the stock has seen highs of $319.32 and lows of $58.01. As of now, it rests at $83.19, presenting an intriguing opportunity for long-term investors, given its comparatively lower valuation.

BABA stock and the market cycle

Picture: BABA stock and the market cycle; Source:

Is it a good idea to invest in Alibaba?

Looking at both fundamentals and technical analysis, Alibaba looks undervalued compared to its potential. Considering these factors, making an investment in BABA for the long term holds the promise of being a sound and strategic decision. Before making investment choices, consider your financial goals.

Also, think about your comfort level with risk and the length of time you intend to invest. Thorough research and seeking advice from a financial advisor are crucial steps in effective risk management. Last but not least, some key strategies are to stay informed about market conditions, and Alibaba-related news, and diversify your investment portfolio.

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