Investment analysis

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Business Overview

Alibaba Group is one of China’s leading multinational corporations, operating in the sectors of e-commerce, digital payments, cloud computing, and logistics. Founded in 1999 by Jack Ma, the company has revolutionized e-commerce in China and globally, becoming the main reference point for business-to-business (B2B), business-to-consumer (B2C), and consumer-to-consumer (C2C) through platforms such as Alibaba.com, Taobao, Tmall, and AliExpress.

On an international level, Alibaba stands out for its business model based on an integrated ecosystem, which includes financial services through Ant Group (Alipay), cloud solutions via Alibaba Cloud, and an increasingly significant presence in logistics with Cainiao Network.

In 2014, Alibaba carried out the largest IPO in history on the New York Stock Exchange (NYSE), raising $25 billion. Since then, the group has continued to expand, facing regulatory challenges in China and growing competition in the tech sector.

In 2023, Alibaba ranked 68th in the Fortune Global 500 for revenue and 54th in the Forbes Global 2000 of the world’s most influential companies.

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Business model

Alibaba Group is an e-commerce platform structured around six main segments: core commerce (revenue generated in China), international commerce, local consumer services, cloud services, and logistics.

Surrounding Alibaba’s ecosystem, a broader network has emerged—comprising consumers, merchants, brands, retailers, suppliers, strategic alliance partners, and third-party service providers.

In Alibaba’s business model, financial leverage plays a significant role. Combined with their ecosystem, it enables structural cost savings.

The large number of consumers on their marketplaces attracts a vast number of merchants, who then become clients for their storefront and management services. Moreover, the wide consumer base across their ecosystem creates opportunities for cross-selling across platforms. These network effects help reduce traffic acquisition costs and generate synergies across all operations.

Alibaba’s Operating Segments

China Commerce

China commerce is Alibaba’s largest segment and also the biggest integrated domestic wholesale system in China in terms of revenue. It connects buyers and sellers across a wide range of categories and is one of the leading e-commerce logistics networks in Southeast Asia.

In 2023, it generated $80.946 billion in net sales, accounting for 67% of total consolidated sales.

International Commerce

This segment includes platforms such as AliExpress, Lazada, Daraz, and Trendyol. It is a leading and fast-growing e-commerce platform in Southeast Asia, serving one of the largest user bases globally by giving consumers access to a wide range of offers from local SMEs, regional businesses, and global brands.

In 2023, it generated $9.613 billion in net sales, accounting for 8% of total consolidated sales.

Local Consumer Services

This segment allows Alibaba to provide both service providers and their customers with consumer services through mobile and online technologies.

The “To-Home” business enables consumers to order groceries, FMCG products, flowers, and pharmaceuticals anytime, anywhere. The “To-Destination” service offers access to quality services through a single entry point to digital mobile maps, directions, and real-time traffic information.

In 2023, it generated $6.961 billion in net sales, accounting for 5.8% of total consolidated sales.

Cainiao

Cainiao provides end-to-end supply chain and logistics solutions and charges fees based on the number of logistics orders fulfilled. It also offers value-added services for consumers and third-party logistics support for merchants.

In 2023, it generated $7.735 billion in net sales, representing 6.4% of total consolidated sales.

Cloud

Alibaba Cloud offers public cloud services such as storage, networking, databases, big data, security, and proprietary servers. It also provides hybrid cloud solutions, including software licensing, hardware, installation services, application development, and maintenance, tailored to enterprise client needs.

In 2023, it generated $10.724 billion in net sales, accounting for 8.9% of total consolidated sales.

Digital Media and Entertainment

This segment delivers digital media and entertainment services, primarily consisting of subscription members, self-developed online games, and the sale of in-game virtual items.

In 2023, it generated $4.373 billion in net sales, accounting for 3.6% of total consolidated sales.

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Fundamental analysis

Alibaba Group Holding Limited is the leading provider of online commerce in China, offering a wide range of B2B, B2C, and C2C e-commerce services, as well as mobile payment solutions. Alibaba is the world’s largest retailer and e-commerce company. It ranks among the largest internet and artificial intelligence companies, one of the biggest venture capital firms, and one of the world’s top investment corporations.

The company operates the world’s largest B2B (Alibaba.com), C2C (Taobao), and B2C (Tmall) marketplaces. Since 2015, its online sales and profits have surpassed those of all U.S. retailers combined, including Walmart, Amazon, and eBay.

Alibaba is also expanding into the media industry, with revenue from this sector growing by three percentage points year-over-year.

Customer Profile

According to a Forbes report, the average Alibaba customer is around 30 years old—about ten years younger than the average Western consumer—lives outside of major urban centers, and primarily shops via smartphone.

Additionally, Chinese consumers tend to prefer shopping on Tmall (Alibaba’s B2C platform) rather than on the brand’s official website. This preference is due to features such as customer reviews and a highly responsive customer care chat, with average response times under 60 seconds.

Strategy

Alibaba’s strategy is based on affordability, enhancing user experience, and connecting merchants with customers. The company has revolutionized the shopping experience by integrating online, offline, logistics, and data into a single value chain.

With the Chinese e-commerce market reaching maturity, Alibaba is now focusing on international markets to drive growth. This is reflected in the group’s decision to split its e-commerce operations into two separate segments—one for China and one for global markets.

Employees

Alibaba’s workforce consists of approximately 235,000 full-time employees, the majority of whom are based in China. Over one-third of its executives are women, and 45% of employees are under 30 years old.

The company strives to foster a collaborative and inclusive community where employees feel comfortable and work in harmony with one another.

New hires undergo at least ten days of onboarding, with a strong emphasis on Alibaba’s vision, mission, and core values.

Employee compensation is 50% performance-based, and all employees receive stock options as part of their benefits.

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Competitive Advantages

Brand

The Alibaba brand is known by every Chinese citizen, representing the most visited e-commerce site in the country, with strong value and reputation. According to Kantar, a company specialized in data analysis and brand consulting, the “Alibaba” brand ranks ninth in the world in terms of brand value. It represents a guarantee of reliability and security for its customers.

Economies of Scale

As one of the largest e-commerce companies in the world, Alibaba benefits from economies of scale, which allow it to reduce costs and improve efficiency. Thanks to this competitive advantage, the Chinese giant is able to negotiate better deals with suppliers and deliver goods at lower costs.

Scalability

Alibaba does not own inventory but acts as an intermediary between sellers and buyers, maximizing profits without bearing the operational costs of stock management (unlike Amazon).

Advanced Logistics Infrastructure

Through Cainiao Network, Alibaba has built a logistics network that enables it to deliver packages within hours or days, even to the most remote areas of China. This is a key advantage over international competitors.

Technology

Alibaba has a solid technological infrastructure that allows it to manage a large amount of data from its various businesses. It also leverages big data analysis and artificial intelligence to understand customer behavior and improve the user experience.

Network Effect

One of the major advantages of Alibaba’s business model is the so-called network effect, which occurs when a service becomes more valuable as the number of users increases.

Diversified Monetization

Alibaba generates revenue from multiple sources, which is crucial in reducing the risk of relying on a single business area.

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Sector

Alibaba does not operate exclusively in the traditional e-commerce sector but stands out for a business model that integrates various digital and technological fields. The company’s core business includes online commerce, digital payments, cloud computing, logistics, and digital entertainment. This allows Alibaba to position itself as a comprehensive technology ecosystem capable of providing services to both businesses and end consumers.

The e-commerce and technology sector is characterized by continuous expansion and transformation, driven by the growth of online shopping, the digitalization of payment systems, and the adoption of increasingly advanced cloud infrastructures. Thanks to its leadership in the Chinese market and the diversification of its operations, Alibaba is well-positioned to leverage industry trends and maintain a competitive edge.

Alibaba competes with several players on a global scale. In the e-commerce sector, its main competitors are Amazon, JD.com, and Pinduoduo. In cloud computing, Alibaba competes with Amazon Web Services, Microsoft Azure, and Google Cloud. In the digital payments segment, Alipay faces competition from Tencent’s WeChat Pay and Western solutions such as PayPal and Apple Pay. Finally, in the logistics sector, competitors include companies like SF Express, JD Logistics, and FedEx.

Alibaba’s distinctive feature is its integrated ecosystem, which enables greater synergy among the various services offered, reduces dependence on external players, and increases customer loyalty.

Market Share

Alibaba is a tech giant with a strong presence in e-commerce, cloud computing, digital payments, logistics, media and entertainment, local services, and artificial intelligence. Its integrated ecosystem allows it to dominate the Chinese market and compete globally with companies such as Amazon, JD.com, Pinduoduo, Microsoft, and Google.

However, it is not always possible to precisely calculate Alibaba’s market share in all the sectors it operates in, as some segments—such as Alipay (digital payments) and artificial intelligence—do not have publicly available and separate financial data. In sectors where clear data is available, such as e-commerce and cloud computing, Alibaba is among the market leaders, consolidating its position through a strong user base, technological innovation, and advanced infrastructure.

Thanks to its leadership in China, its competitive advantage in digital infrastructure, and its ability to adapt and innovate, Alibaba continues to be a key player in the global tech landscape.

Competition

Alibaba faces strong competition across the various sectors in which it operates. In e-commerce, it competes globally with Amazon and locally with JD.com and Pinduoduo in China. In the digital payments sector, its main rivals include PayPal, Stripe, Tencent’s WeChat Pay, Apple Pay, and Google Pay. In cloud computing, it goes head-to-head with major Western players. In the logistics segment, competition from JD Logistics and global giants like FedEx, UPS, and DHL presents a challenge in terms of delivery efficiency and speed. Finally, in the media and entertainment sector, Alibaba contends with Tencent Video, iQIYI, and Netflix.

Despite the strength of its ecosystem and large user base, Alibaba faces several issues that limit its growth. Its heavy reliance on the Chinese market poses a risk, making it vulnerable to government economic and regulatory policies. State-imposed restrictions, particularly in the fintech sector, have already had a significant impact on the company, as demonstrated by the halted IPO of Ant Group. In cloud computing, Alibaba also faces stiff competition from global leaders such as Amazon Web Services, Microsoft Azure, and Google Cloud. In logistics, its subsidiary Cainiao is less efficient compared to competitors like JD Logistics and Amazon, which benefit from more developed proprietary infrastructure.

The main growth opportunities for Alibaba lie in expanding into emerging markets such as India, Southeast Asia, and Africa, where e-commerce and digital payments are rapidly developing. Furthermore, strengthening Alibaba Cloud could allow the company to enhance its global presence in the tech sector. Increased investment in logistics could also provide a competitive edge, enabling it to compete more effectively with Amazon and JD.com.

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swot analysis

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Financials

Revenue

Alibaba’s revenue has experienced consistent growth over the past years, with a 7-year CAGR of 28.1%. However, over the past 3 years, growth has slowed down, with an increase of only 6%.

EBITDA and Operating Income

EBITDA shows a 7-year compound annual growth rate of 15.7%, though the growth curve has flattened, standing at just 1.8% over the last 3 years. After peaking in 2021, it saw a slight contraction in 2022, followed by a recovery in 2023 and 2024.

Operating Income recorded a 7-year CAGR of 15.3%, but also experienced a slowdown over the past 3 years, with a 3-year CAGR of 4.7%. Nevertheless, after a dip and stabilization in 2022–2023, it grew significantly in 2024 and the last twelve months, indicating improved efficiency in managing operating costs.

Net Income and EPS

Net income saw a notable decline over the 2022–2024 period, with a negative 3-year CAGR of -21.6%. Despite this, in 2024 and the last twelve months, the trend reversed with an LTM increase of 56.31%. EPS mirrors the trend of net income.

Effective Tax Rate

The effective tax rate has decreased by an average annual compound rate of -20.55% since peaking in 2022, reflecting an improved tax optimization strategy by the group.

Margins

Alibaba’s margins experienced a significant contraction between 2020 and 2022, followed by a partial recovery in 2024 and over the last 12 months. Overall, despite signs of improvement, margins remain well below previous levels, highlighting the need to monitor future performance to assess whether the recovery is sustainable.

Profitability

Profitability ratios saw a sharp decline in 2022, reflecting a critical phase for the company, but they have shown signs of recovery over the last 12 months. Despite this rebound, values remain below 2020–2021 levels, suggesting that Alibaba is still facing challenges in restoring its historical profitability. In summary, the recovery of key profitability indicators in the LTM is a positive sign, but uncertainties remain regarding the company’s ability to sustain this trend in the long term. Investors should closely monitor the evolution of margins and the efficiency in the use of assets and invested capital.

Efficiency

Efficiency metrics show significant signs of improvement. One element to monitor is the cash conversion cycle which, although still excellent, has worsened over the last 12 months. However, optimizing inventory turnover remains a challenge that needs to be addressed in order to ensure greater operational and financial strength.

Financial Strength

Alibaba’s solvency ratios show a slight downward trend, though they remain at healthy levels. Despite a decline in liquidity ratios, the company maintains a strong financial position, with solid interest coverage and a relatively low debt level compared to its assets. Nevertheless, it is advisable to keep monitoring these indicators to ensure the trend does not further deteriorate.

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valuation

Valuation multiples

To compare valuation multiples, the following competitors were selected: Amazon, Pinduoduo, eBay, and JD.com. These companies were chosen because they represent the main players in the global and regional e-commerce and tech sectors, providing a comprehensive and representative benchmark for comparison.

Below are the results of the analysis.

The valuation multiple analysis shows that Alibaba appears undervalued across nearly all key multiples compared to the sector average and median. However, due to the high variability of these multiples, an analysis based solely on them cannot be considered fully reliable.

The significant gap between Alibaba’s multiples and those of Amazon highlights a specific negative market sentiment toward the Chinese market, but it could also represent an opportunity for investors with a long-term perspective and a medium-to-high risk tolerance.

Historical Valuation Multiples

The chart illustrates the trend of Alibaba’s key valuation multiples over the past five years, highlighting how the market’s valuation metrics have shifted over time. Compared to its historical averages, the Chinese stock appears significantly undervalued.

This undervaluation reflects a heightened perception of risk. However, if external risk factors were to subside, the stock could offer a strong long-term revaluation opportunity.

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Discounted cash Flow

Model

To calculate the intrinsic value, a 10-year Discounted Cash Flow (DCF) model was used.

WACC

To determine the Weighted Average Cost of Capital (WACC), the 10-year U.S. Treasury yield (4.249%) was selected as the risk-free rate. Country risk was calculated based on the revenue generated in each country/geographic area. Finally, the cost of debt was estimated using the US01609WAX02 bond maturing in February 2031, which currently has a yield of 2.125%.

The resulting WACC is 7.1%.

Assumptions

Base Case

The base scenario considers a gradual economic recovery and effective management of regulatory challenges. Alibaba continues to expand its cloud services and optimize costs, maintaining stable operating margins.

Investments remain sustainable and focused on innovation, ensuring a balanced approach between growth and profitability. This view reflects a realistic and balanced outlook on the company’s future potential.

At the current price of $107, the stock appears undervalued compared to its fair value estimate of $134.8 — offering an attractive upside potential of around +25%.

The base case reflects moderate economic recovery, margin improvement, and operational stability. While risks remain, current levels offer a compelling entry point for long-term investors willing to bet on Alibaba’s resilience and future growth.

Best Case

In this scenario, Alibaba benefits from a strong economic recovery and strengthens its leadership in the cloud and digital markets. Operational efficiency improves significantly, leading to high and sustainable margins. Technology investments are optimized, enabling innovation without sacrificing profitability. Investor confidence increases, resulting in a positive valuation that reflects prospects for expansion and international success.

Worst Case

This scenario reflects a challenging economic environment, with strict regulations and intense domestic competition. Growth slows and margins shrink, driven by high operating costs and ongoing investments to maintain competitiveness. Investor confidence remains low, leading to a conservative valuation. This scenario considers key macroeconomic and regulatory risks, maintaining a cautious outlook.

Final Assessment

Considering the current market price of $107, the analysis highlights an attractive risk/reward profile. Downside appears limited, while upside potential remains significant, especially if Alibaba manages to overcome current headwinds and unlock value from its core businesses and ongoing restructuring.

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our opinion

Alibaba is a leading player in the e-commerce and cloud computing industries, underpinned by a highly integrated digital ecosystem and a dominant market position both in China and internationally. In recent years, the company has demonstrated strong resilience and adaptability in navigating a challenging environment, characterized by regulatory tightening, slower domestic consumption, and rising competition.

Despite these headwinds, Alibaba continues to benefit from a well-diversified business model and robust technological capabilities. In particular, the cloud segment remains a key strategic asset, offering superior growth prospects and margin expansion opportunities compared to its more mature e-commerce operations, which have faced increased saturation and competitive pressure.

At the same time, regulatory uncertainty, geopolitical tensions, and the risk of delisting from U.S. stock exchanges represent key risks for the company going forward. Domestic competition from players such as JD.com and Pinduoduo further adds to the challenging landscape.

However, at the current market price of $107, Alibaba presents a highly attractive risk/reward profile. My DCF analysis indicates a base case fair value of $134.8 per share (+25.1% upside), with a best case target of $173 (+60.6%) and a worst case valuation of $100.9 (-6.3%). This valuation framework suggests that much of the regulatory and macroeconomic risk is already priced in by the market, while limited downside risk is offset by substantial upside potential in a scenario of stabilization and growth recovery.

In this context, a potential rebound in Chinese consumption, easing regulatory pressures, and further expansion of high-margin businesses — particularly cloud computing — could act as key catalysts for a re-rating of the stock.

Given the current valuation gap, Alibaba offers an appealing entry opportunity for long-term investors. The company’s solid fundamentals, diversification, and exposure to secular growth trends — combined with an asymmetric risk/reward profile — support a BUY recommendation. While short-term volatility is likely to persist, the stock provides compelling upside potential for investors willing to look beyond current market uncertainties.