By Teresa Rivas

A disappointing fiscal fourth-quarter report hurt American depositary shares of Alibaba. The Chinese online retailer and cloud provider should bounce back.

On Thursday, Alibaba Group Holding reported net income of 12.38 billion Chinese yuan ($1.71 billion) for the quarter ended March 31, on revenue that climbed 7% from a year ago to $32.58 billion. That was below the net income of $2.93 billion and revenue of $33.28 billion analysts had predicted, according to FactSet.

The shares, which had surged about 60% since the start of the year, slumped on the news, falling 7.6% to a recent $124.17.

That's Alibaba for you. It's likely no report would have been good enough, given how much the stock had rallied and the fact that questions remain about the health of the Chinese economy. Even if the terms of the 90-day tariff pause become permanent, there are still higher levies on Chinese goods than there were at the start of the year. Even before the trade war, China's economy had struggled, and it's unclear whether or not big stimulus packages from Beijing will be enough to stimulate growth.

Chinese tech faces its own challenges as well: The artificial intelligence landscape is evolving quickly, and while the company is doing well it still faces plenty of domestic competition.

Nonetheless, Alibaba's winning streak may not be over yet. While the top- and bottom-line numbers missed the mark, there were encouraging data points in the report that show the company's core retail and cloud units are growing, notes Benchmark Equity Research analyst Fawne Jiang, who has a Buy rating and $190 price target on the shares.

She highlights that revenue growth for the Taobao and Tmall Group grew 9% year over year, ahead of expectation, while its cloud business accelerated to 18% growth year-over-year. Its international digital commerce and digital media and entertainment segments were also both up more than 20% in the quarter.

The company has also been actively returning cash to shareholders, notes Citi analyst Alicia Yap, who has a Buy rating and $169 price target on Alibaba. The company bought back nearly $12 billion worth of shares in fiscal 2025, reducing its share count by more than 5%, and is also spending $4.6 billion on a two-part dividend that includes its regular payout along with a special dividend, expected to be paid out in July.

Alibaba has jumped some 25% since Barron's recommended the stock in the fall, and a lot of the catalysts -- including the ongoing AI revolution and the Chinese government's strong incentives to support the economy -- remain.

With a forward price-to-earnings ratio of 13 times, Alibaba trades at just over half of its five-year average: Even with the recent run-up in shares, that doesn't look too pricey. Consensus still calls for earnings per share to climb 10% this fiscal year, to $10, and to rise more than 12% in the next. The average analyst price target of $165 implies a 34% gain.

Alibaba stock isn't a stranger to big moves like the post-earnings selloff, and it will inevitably trade around China- and tariff-focused headlines near term.

No worries. The run isn't done.

Write to Teresa Rivas at teresa.rivas@barrons.com

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May 16, 2025 02:00 ET (06:00 GMT)

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