Alibaba (BABA) Pre-earnings Analysis
As with most Chinese stocks listed on U.S. markets, Alibaba has struggled to maintain a steady in rally over the past twelve months, partly because of geopolitical tensions between the U.S. and China, but mostly because of uncertainty around Chinese regulations. Wall Street often refuses to pay a high premium from Chinese assets, hence why they often trade below the average of their American counterparts. This is important to keep in mind when analyzing any China based company.
Looking past the China influence, Alibaba is currently in a transition phase. The company is going from an e-commerce giant to an AI first tech company. They already have a massive ecosystem that generates billions of dollars, which has allowed them to invest billions back into research and development…estimates are at $50 billion in CapEx FY26. We’ve seen hyperscalers in the U.S. report billions in spending forecasted over the coming years on AI infrastructure, $BABA is one of the giants doing it in China. This has both positive and negative effects on the stock…on one hand, it keeps them competitive and sets them up for success if AI does take off and becomes a revenue generating space, but on the other, if the AI initiatives fail, it’s a $50 billion loss. It’s too early to tell if they’ll succeed, which leaves investors very uncertain going into these earnings.
Alibaba has already proven to be a successful business. They’re estimated to close out the 2025 earnings year on tomorrow’s earnings before market open as they report Q4 numbers. Revenue is set to grow to $150 billion, a new record, but the focus will be on profit margins and outlook. Investors are afraid that AI spending will begin weighing on margins. The company’s free cash flow is nearly drained and it’s not looking like it’ll make a big comeback for 12-24 months. This might weigh on the stock’s valuation in the meantime.
Option chain analysis:
BABA’s option chain expiring on April 17th currently reflects an implied volatility reading of 46%, which is about a (+/-) $15 move from the underlying stock.
March 20th shows a (+/-) $7.8 move.
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