Key Takeaways
- A severe disconnect persists between Alibaba’s operational growth since 2018 and its share price, which has fallen significantly despite a substantial increase in revenue and earnings per share.
- The valuation discount is not a singular issue but a composite of geopolitical risk, a shifting and unpredictable domestic regulatory environment, and, crucially, intensified competition from rivals like PDD Holdings and ByteDance.
- Alibaba’s strategic pivot towards massive capital returns via buybacks and dividends signals a maturation from a hyper-growth narrative to a value-oriented one, a shift the market has yet to fully price in.
- The ambitious corporate restructuring has faced significant headwinds, with shelved IPOs for its Cloud and Logistics arms highlighting execution risk and the complexities of unlocking siloed value amidst market volatility.
There are few large-cap equities globally that present a more confounding picture than Alibaba. An observation from the analyst TacticzH highlights the core paradox: since the first quarter of 2018, the company has delivered formidable growth in its top and bottom lines, yet its stock has been treated with profound disdain by the market. This is not merely a case of slowing growth; it is a structural derating rooted in a complex blend of macroeconomic anxiety, geopolitical friction, and a fundamental shift in its competitive landscape. To understand Alibaba’s prospects is to dissect the anatomy of the so-called ‘China discount’ and question whether the market’s pessimism has overshot the reality of the firm’s operational and strategic realignment.
A Tale of Two Tapes: Performance vs. Perception
The divergence between Alibaba’s financial performance and its market valuation is stark. While the stock’s multi-year decline is well-documented, the underlying business has demonstrated a resilience that the share price chart belies. The numbers illustrate a company that has successfully expanded its scale and profitability, even as it navigated unprecedented headwinds. The market, it seems, has chosen to focus exclusively on the risks, leaving the fundamentals largely unrewarded.
A look at the key metrics from fiscal year 2018 to the most recently reported figures for fiscal year 2024 reveals the scale of this disconnect.
| Metric | Fiscal Year 2018 | Fiscal Year 2024 | Change |
|---|---|---|---|
| Total Revenue (RMB Billions) | 250.2 | 941.1 | +276% |
| Net Income (RMB Billions) | 61.4 | 71.3 | +16% |
| Diluted EPS (RMB) | 23.44 | 34.97 | +49% |
| Share Price (USD, approx.) | ~$185 (March 2018) | ~$79 (May 2024) | -57% |
Source: Alibaba Group Annual Reports. Share prices are approximate for the corresponding periods. Net income is based on GAAP measures and can be volatile due to investments; non-GAAP measures often show a smoother trend.12
The data confirms that this is not a business in terminal decline. Revenue has nearly quadrupled, and earnings per share have grown substantially. The muted net income growth reflects significant reinvestment and mark-to-market losses on its vast equity portfolio, but the core operational engine remains robust. The market’s verdict, however, has been brutal.
Deconstructing the Discount: Regulation, Competition, and Restructuring
The valuation chasm is a function of three intertwined forces that have reshaped Alibaba’s investment case.
Regulatory and Geopolitical Overhang
Beginning with the cancelled Ant Group IPO in late 2020, Beijing initiated a sweeping regulatory rectification campaign targeting its largest technology firms. Alibaba was at the epicentre, facing antitrust fines and intense scrutiny over its market power. While the most aggressive phase of this crackdown appears to have passed, it has left a permanent scar. The implicit state backing that investors once assumed has been replaced by an environment of unpredictability. This elevated risk premium is now a permanent feature of the valuation equation, compounded by persistent US-China geopolitical tensions that affect everything from supply chains to the potential for delisting from US exchanges.
The Competitive Crucible
Perhaps more damaging than regulation has been the erosion of Alibaba’s once-impenetrable competitive moat. The rise of PDD Holdings (owner of Pinduoduo and Temu) has been nothing short of extraordinary. PDD’s low-price, social commerce model has captured a vast segment of the market that Alibaba once dominated. Simultaneously, short-form video platforms like ByteDance’s Douyin have emerged as formidable e-commerce channels, further fragmenting the digital advertising and commerce landscape. Alibaba is no longer the undisputed champion; it is a brawler in a multi-front war, forcing it to increase investments in subsidies and user retention, thereby pressuring margins.
A Restructuring Under Pressure
In response to these challenges, Alibaba announced a landmark plan in March 2023 to split into six independent business groups, with the aim of unlocking value by allowing each unit to pursue its own funding and IPO. The strategy was bold but has met with mixed success. The company reversed its decision to spin off its highly strategic Cloud Intelligence Group, citing uncertainties related to US export controls on advanced chips.3 More recently, it shelved the IPO for its logistics arm, Cainiao, opting instead to purchase the remaining shares it did not own to better integrate logistics with its core commerce operations.4 These reversals, while perhaps strategically sound, signal that the path to value crystallisation is far more complex than initially envisioned.
Valuation: Deeply Depressed, But Justifiably So?
When placed alongside its peers, Alibaba’s valuation appears deeply compressed, particularly against its US counterpart, Amazon. However, when compared to its domestic rivals, the valuation seems less like an anomaly and more like a reflection of the sector-wide risks.
| Company | Forward P/E Ratio | Price/Sales (TTM) | Market Cap (USD) |
|---|---|---|---|
| Alibaba ($BABA) | ~8.5x | ~1.4x | ~$190 Billion |
| Amazon ($AMZN) | ~36x | ~3.3x | ~$1.9 Trillion |
| JD.com ($JD) | ~8.0x | ~0.3x | ~$48 Billion |
| PDD Holdings ($PDD) | ~16x | ~4.5x | ~$205 Billion |
Source: Data compiled from financial data providers as of late May 2024. Figures are approximate and subject to market fluctuation.
Alibaba trades at a forward P/E multiple similar to its domestic peer JD.com, suggesting the market is pricing in comparable country and competitive risks. The outlier is PDD, which commands a higher multiple due to its explosive growth trajectory. The gargantuan valuation gap with Amazon reflects the market’s willingness to pay a significant premium for operations in a more stable regulatory and geopolitical jurisdiction, despite Alibaba’s continued growth in key areas like AI-driven cloud services.5
A New Narrative: From Growth to Value
Faced with a share price that fails to reflect its operational scale, Alibaba’s management is orchestrating a significant pivot in its capital allocation strategy. The focus is shifting from relentless expansion to shareholder returns. The company has committed to a substantial capital return programme, with a share buyback plan increased by $25 billion through to March 2027, one of the largest such programmes in the Chinese tech sector.6 It has also initiated its first-ever annual dividend.
This pivot is crucial. It is an implicit acknowledgement that the era of hyper-growth is over and that the best use of its prodigious cash flow may now be returning it to shareholders rather than pursuing marginal growth projects. My speculative hypothesis is that the market has not yet fully digested this identity shift. As the buybacks reduce the share count and the dividend provides a tangible yield, the investment case could transform from a frustrated growth play into a compelling value and income proposition. The catalyst for a re-rating may not be a sudden return to market dominance, but rather the slow, steady drumbeat of capital returns forcing investors to recognise the immense cash-generative power of the underlying business, even in a more competitive world.
References
1. Alibaba Group. (2024, May 14). Alibaba Group Announces March Quarter and Full Fiscal Year 2024 Results. Retrieved from https://www.alibabagroup.com/en-US/ir-financial-reports-financial-results
2. MacroTrends. (2024). Alibaba Revenue 2010-2024 | BABA. Retrieved from https://www.macrotrends.net/stocks/charts/BABA/alibaba/revenue
3. Alibaba Group. (2023, November 16). Alibaba Group Announces September Quarter 2023 Results. Retrieved from https://www.alibabagroup.com/en/news/press_pdf/p231116.pdf
4. Alibaba Group. (2024, March 26). Alibaba Group Provides Update on Cainiao Smart Logistics Network Limited. Retrieved from https://www.alibabagroup.com/en/news/article?name=alibaba-group-provides-update-on-cainiao-smart-logistics-network-limited
5. Jefferies. (2024, February 8). Jefferies Maintains Buy on Alibaba Shares, Cites Strong AI-Driven Cloud Growth. Quoted in Investing.com. Retrieved from https://investing.com/news/stock-market-news/jefferies-maintains-buy-on-alibaba-shares-cites-strong-aidriven-cloud-growth-432SI-3301540 (Note: Access to original report may require subscription).
6. Alibaba Group. (2024, February 7). Alibaba Group Announces December Quarter 2023 Results. Retrieved from https://www.alibabagroup.com/en-US/ir-financial-reports-financial-results
7. @TacticzH. (2024, May 18). [Since Q1-18 Revenue: +244% EPS: +90% Stock price: -39.2%…]. Retrieved from https://x.com/TacticzH/status/1791691821730763240
