Alibaba: Mizuho hikes PT on stronger cloud, commerce momentum

Mizuho Securities raised its price target on Alibaba Group to $159 from $149, maintaining an "outperform" rating, citing improving fundamentals in its core e-commerce and cloud businesses. Analysts highlighted stronger-than-anticipated core commerce revenue growth, with a 10% increase in the June quarter and a 20% rise in Taobao's monthly active users due to instant shopping initiatives, which management expects to contribute an additional 1 trillion yuan in GMV by fiscal 2028. Cloud growth is also projected to accelerate, driven by surging generative AI demand and increasing adoption of Alibaba's open-source models, leading Mizuho to lift its FY2028 EBITDA estimate by 3%. Hong Kong-listed shares surged 18.5% following the news.

Analysis

Mizuho Securities has upgraded its price target on Alibaba Group (BABA) to $159 from $149, maintaining an "outperform" rating based on strengthening fundamentals in its core e-commerce and cloud divisions. While headline revenue and EBITDA were soft due to divestitures and increased investment, the underlying trends are positive. Core commerce revenue grew 10% in the June quarter, bolstered by a 20% increase in Taobao's monthly active users. This growth is attributed to higher advertising yields from the Quanzhantui tool and rising transaction frequency from the company's push into instant shopping. Management projects this instant shopping initiative will contribute an additional 1 trillion yuan in gross merchandise value by fiscal 2028. Concurrently, the cloud business is poised for acceleration, fueled by surging demand for generative AI and the increasing adoption of Alibaba's open-source models by Chinese firms. Reflecting this improved outlook, Mizuho has raised its FY2028 EBITDA estimate for Alibaba by 3%. The market reacted strongly to the news, with the company's Hong Kong-listed shares surging 18.5% before a slight pullback.

Key Decisions for Investors

• Given the positive analyst revision and evidence of strengthening fundamentals in both core commerce and cloud, investors may view this as a signal to consider initiating or increasing positions in BABA, a thesis supported by the 18.5% share price surge.
• Monitor key performance indicators in subsequent earnings reports, specifically the growth in cloud revenue to validate the generative AI catalyst and the contribution of instant shopping to gross merchandise value against management's 1 trillion yuan target.
• Be mindful that despite the explained reasons for the headline miss, future reports must demonstrate that current investments are effectively translating into the projected revenue and EBITDA growth to justify the bullish outlook.