UBS has released a research report, increasing the price target for Alibaba-W (09988) from HK$179 to HK$190, and for its US-listed shares (Alibaba (BABA.US)) from $184 to $195, while maintaining a "Buy" rating on both.

The bank forecasts that Alibaba's total revenue growth will reaccelerate to 9% year-on-year in the first fiscal quarter, primarily benefiting from accelerated growth in its cloud business and the gradual fading impact of the first-party business spin-off. Adjusted EBITA is expected to have bottomed out at RMB 26 billion, though this still represents a 34% decline compared to the same period last fiscal year.

Segment Performance Breakdown

For the China Commerce segment, the report predicts that the Gross Merchandise Volume (GMV) for Taobao and Tmall Group (TTG) will be flat year-on-year due to weak consumption. Given the potential for increased merchant subsidies during the 618 promotional period, Customer Management Revenue (CMR) is forecast to decline by 8% year-on-year.

UBS anticipates EBITA for the China Commerce segment to be approximately RMB 37 billion, with losses in the immediate retail business narrowing year-on-year to RMB 10 billion, compared to a loss of RMB 18 billion in the previous fiscal quarter.

Revenue growth for the Cloud business is expected to accelerate to 45% year-on-year, with its EBITA margin also improving to 11%.

Rationale for the Upgrade

The report notes that over the past several quarters, consensus earnings expectations for Alibaba have been consistently revised downward due to impacts from AI and express delivery e-commerce investments, leading to underperformance in the stock price.

From an earnings revision perspective, the bank believes the cycle of market downgrades has passed, with expectations now adjusted to a lower base. Concurrently, core TTG margins are improving, losses in the express delivery e-commerce business are narrowing, and the cloud business is seeing accelerated growth alongside margin improvement.

Against this backdrop, the market is expected to refocus on Alibaba's highly valuable AI assets and growth narrative. Following the recent stock price correction, the current price is seen as offering an attractive investment opportunity.