Alibaba Leads China's Rebound! Can Q3 Earnings Keep Up?

Alibaba is set to report its fiscal Q3 2025 earnings pre-market on Feb. 20. Since China introduced strong economic stimulus in late September, Alibaba has emerged as the leader among Chinese tech stocks. The key question now: Can earnings justify its rally?

Market estimates project Alibaba's revenue to grow 6% year-over-year to $38.2 billion, with EPS rising 2.7% to $2.67.

Domestic E-Commerce: A Key Driver

Alibaba's most critical business remains its China domestic e-commerce segment. While macroeconomic headwinds may pose challenges, China's stimulus measures could boost consumption, benefiting Alibaba. The company also stabilized its monetization rate by implementing a 0.6% software service fee on all merchants since September, improving its site-wide ad penetration.

Additionally, Alibaba launched a gift-giving feature on Taobao on Jan. 8, just after WeChat introduced a similar function in December. Compared to WeChat, Taobao offers better cost efficiency and a deeper product selection. This feature could drive new GMV growth, particularly during the Chinese New Year gift-giving season.

International E-Commerce Accelerates

Alibaba's international e-commerce business is expanding rapidly, driven by AliExpress' Choice model and Trendyol's growth. The newly launched AliExpress Direct leverages local inventory to improve fulfillment speed, further strengthening the company's international positioning.

Cloud & AI: A Major Growth Engine

With DeepSeek gaining global traction, Alibaba has stepped up its AI push. The company's Qwen model has become a top-tier AI competitor. In China, Alibaba Cloud remains the dominant market leader, and with tech sector revaluation and renewed capital investment, its cloud growth could accelerate.

Jefferies analyst Thomas Chong is bullish on Alibaba Cloud and the growing AI demand. He highlights that Qwen powers leading open-source AI models, and Alibaba's latest Qwen 2.5-Max MoE model outperforms key competitors. He also sees strong enterprise cloud adoption.

Notably, reports suggest Alibaba's Qwen 2.5 model will be integrated into iPhones sold in China, enhancing voice recognition, content recommendations, and photo editing. Securing Apple as a client underscores Alibaba's AI strength. However, recent price cuts for non-China cloud customers could impact margins.

Capital Returns

Alibaba is actively selling non-core offline assets, with proceeds expected to benefit shareholders.

Jan. 1 Announced the sale of a 78.7% stake in Sun Art Retail for HK$13.18 billion; Dec. 17 Sold 99% of Intime Retail for approximately $1 billion. These moves align with Alibaba's strategy of streamlining operations and enhancing shareholder value.