Alibaba Earnings Preview: AI Surge and Turnaround Catalysts in Focus

The report arrives amid resurgent investor optimism driven by the company's AI breakthroughs and a 46% rally in its Hong Kong-listed shares since mid-January.

Analysts estimate BABA to post revenue of CNY278.93B for 2025Q3, up 7.14% YOY;

EPS is estimated to be CNY2.16, up 204.13% YOY.

Taobao and Tmall’s gross merchandise volume (GMV) growth is expected to show sequential improvement, fueled by stronger-than-expected performance during the 2024 "Double 11" shopping festival. CEO Eddie Wu highlighted during the last earnings call that the event demonstrated "resilient consumer engagement," validating efforts to enhance platform user experience and product offerings.

Starting September 2024, Alibaba introduced a 0.6% base software service fee on Taobao transactions, which is projected to boost core customer management revenue (CMR) growth to 6% YoY in Q3, up from 2.5% in the prior quarter. This structural shift could unlock higher monetization potential as the platform's current take rate remains below industry averages.

Alibaba's shares have surged to their highest levels since 2022, driven by its advancements in generative AI. The company’s Qwen 2.5 Max model recently outperformed Meta's Llama and DeepSeek's V3 in benchmark tests, positioning Alibaba as a leader in China's AI race. A reported collaboration with Apple to integrate AI features into devices in China further ignited bullish sentiment.

The interconnection with Tencent's WeChat Pay is gradually dismantling traffic barriers, potentially expanding Alibaba’s user acquisition funnel. Early signs of merchant budget migration back to Taobao from short-video platforms like Douyin further support GMV and CMR upside.

Alibaba's planned divestment of underperforming units, including Intime and Sun Art Retail, is expected to incur a CNY22 billion ($3.1 billion) one-time loss in fiscal Q4 2025. However, J.P. Morgan estimates this move will elevate adjusted EBITA margins from 45% to 54% by fiscal 2026, driving a 13% profit uplift and improved return on equity (ROE).

After quarters of lackluster growth, Alibaba Cloud revenue is anticipated to rebound to double-digit YoY growth, supported by low-base effects and rising demand for public cloud and AI-driven solutions from government and corporate clients.

Andy Wong from Solomons Group highlights the impact of DeepSeek's AI breakthroughs, stating, "DeepSeek's AI innovations have rekindled interest in Alibaba, setting it apart for clearer earnings growth compared to its peers."

JPMorgan analysts caution about the complexities of AI monetization, noting, "AI's potential to enhance valuation is clear, yet monetizing these capabilities remains a significant challenge." Manish Bhargava of Straits Investment Management points out the valuation discrepancy, "Despite Alibaba's growth potential and market position, its stock remains undervalued compared to US tech peers."

The performance on this earnings announcement day has drawn significant attention. The options market has priced in an implied movement of up to ±8.9%, which is significantly higher than the historical average level. In the previous four earnings announcement days, the market expected an average post-earnings volatility range of ±6.2%, while the actual final movement range reached ±3.5%.

Investors will focus on:

AIRoadmap: Progress in Qwen model adoption and partnerships (e.g., Apple).

Cloud Margins: Pricing strategies and enterprise demand trends.

CapitalAllocation: Updates on buybacks, dividends, and asset sales.