Bullbear Buffett : Alibaba is in a transitional phase

Wednesday, 10 June 2026

Alibaba is in a transitional phase

The fiscal year 2026 financial statements for Alibaba, a Hong Kong-listed company, illustrate a firm in the midst of a deliberate strategic transition. The figures show a business navigating short-term profit pressures while investing heavily in long-term growth, anchored by its core e‑commerce operations and a rapidly expanding artificial intelligence and cloud division.

Alibaba’s business can be broken down into three core pillars.

The largest revenue contributor is the China Commerce Group, which includes Taobao and Tmall. This segment combines traditional e‑commerce with quick‑commerce (Taobao Instant Delivery), the latter enjoying explosive growth. In the first quarter of 2026, the China Commerce Group accounted for approximately 53.5% of total revenue and grew 16% year‑on‑year.
The second major segment is the Cloud Intelligence Group, which contributed about 16.1% of revenue and grew 34% year‑on‑year. Within this segment, AI‑related revenue exceeded 20% of the total and was growing at a triple‑digit pace, making cloud and AI the primary growth engines.
The International Digital Commerce Group, comprising AliExpress, Lazada and Trendyol, represented around 13.1% of revenue with 10% growth.

The remaining revenue comes from Cainiao logistics and other smaller initiatives, although this category has seen a decline due to strategic disposals of non‑core assets such as Sun Art and Intime. By shedding these non‑essential businesses, Alibaba is sharpening its focus on its core commerce and cloud operations, which has temporarily weighed on headline revenue growth.

Alibaba possesses several durable competitive advantages that create a powerful economic moat.

First, its ecosystem functions as a “flywheel”. The vast e‑commerce platforms generate enormous transaction volumes and data, which feed into the cloud and logistics arms. This data improves merchant efficiency and consumer experience, which in turn strengthens the core commerce business.
Second, network effects and data advantages are immense. With over 900 million active consumers and more than 10 million active sellers, Taobao and Tmall create strong gravitational pull for both sides of the market. The user data derived from this scale powers AI‑driven personalisation and advertising, delivering a superior shopping experience that rivals struggle to replicate.
Third, vertical integration creates high switching costs. By owning the retail front‑end (Taobao/Tmall), the cloud infrastructure (Alibaba Cloud) and the logistics network (Cainiao), Alibaba offers a seamless, full‑stack solution. The cost and complexity of migrating away from this integrated platform lock in merchants and enterprise customers, ensuring long‑term stickiness.

Turning to the financial statements, fiscal year 2026 (ending March 2026) shows a period of transition. Annual revenue reached HK$1,124,719 million, a 4.56% increase over the previous year. This represents a return to steady growth after a slight contraction in fiscal year 2022, though the pace remains modest. Quarterly results show significant volatility, with the March 2026 quarter experiencing a sharp 12.10% revenue decline from the prior quarter, likely due to the disposal of non‑core assets which temporarily depressed top‑line results in line with the company’s strategic refocusing.

The most striking feature of the financials is the dramatic compression in profitability, revealing management’s decision to prioritise growth investments over short‑term earnings. Despite a gross profit margin of 39.48% and a net margin of 10.35%, net income for fiscal year 2026 fell to HK$116,358 million, a 16.76% decline from the previous year’s HK$139,780 million. The quarterly data is even more striking: in the fourth quarter of 2026 (ended March 31, 2026), GAAP net income fell sharply year‑on‑year as a direct result of heavy reinvestment. The earnings before interest and tax (EBIT) margin more than halved to just 5.8% in fiscal year 2026 from 14.7% in the prior year, primarily due to a 42.9% surge in selling, general and administrative expenses. These elevated investments are channelled into three main areas: AI and cloud infrastructure (heavy capital expenditure), instant retail (Taobao Instant Delivery, which is operating at a significant loss), and user experience initiatives to attract and retain customers in a competitive market.

Other key financial metrics include diluted earnings per share (EPS), which fell 16.40% to HK$6.05 in fiscal year 2026, mirroring the drop in net income. However, the effect was partially offset by a 12% reduction in outstanding shares (from 21.8 billion to 19.2 billion) due to aggressive share buybacks. The dividend of HK$1.05 per share, with an ex‑dividend date of June 11, 2026, indicates management’s confidence in the company’s cash flow despite the earnings decline. The price‑to‑earnings ratio of 19.33 is relatively moderate, especially considering the temporary earnings downturn, and the market capitalisation of approximately $291 billion suggests that investors are focused on Alibaba’s future potential rather than its current earnings.

In summary, the income statements depict a company undergoing a significant and deliberate strategic transformation. Alibaba is consciously trading short‑term profitability for long‑term growth by aggressively investing in its “User First, AI‑Driven” strategy. The China E‑commerce Group continues to demonstrate resilience and generate cash, although it faces intense competition from rivals such as PDD Holdings (Pinduoduo) and JD.com. The true highlight is the Cloud Intelligence Group, which is emerging as a powerful second growth engine, with AI‑related revenue accelerating at a triple‑digit pace. Alibaba is in a transitional phase, betting its future on becoming a leader in AI and cloud computing – a journey that carries execution risks but offers a potentially transformative payoff.

Key Stock Data

P/E Ratio (TTM)
19.33(06/09/26)
EPS (TTM)
^$6.19
Market Cap
^$290.96 B
Shares Outstanding
2.40 B
Public Float
N/A
Yield
0.86%(06/09/26)
Latest Dividend
^$1.05(07/13/26)
Ex-Dividend Date
06/11/26

Short Interest (05/29/26)

Shares Sold Short
38.87 M
Change from Last
-2.01%
Percent of Float
N/A

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My 18 points guide to Successfully compounding your money in Stocks

Be a good stock picker.
Think as a business owner.
Always look at value rather than the price. Do the homework.
Buy and hold is alright for selected stocks.
Compounding is your friend, get this to work its magic.
Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.
Always buy a lot when the price is low.
Never buy when the stock is overpriced.
It is alright to buy when the selected stock is at a fair price.
Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.
Do not time the market for such or any stocks.
By keeping to the above strategy, the returns will be delivered through the growth of the company's business.
So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.
The downside risk is protected through only buying when the price is low or fairly priced.
Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.
Sell urgently when the company business fundamental has deteriorated irreversibly.
You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.
In conclusion, a critical key to successful investing is in your stock picking ability.

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.
2. Never invest in any idea you can’t illustrate with a crayon.
3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
5. Time is on your side when you own shares of superior companies.
6. Owning stock is like having children. Don’t get involved with more than you can handle.
7. When the insiders are buying, it’s a good sign.
8. Unless you’re a short seller, it never pays to be pessimistic.
9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:
- fixed assets such as equipment, property, or industrial buildings
- fixing problems with an asset
- preparing an asset to be used in business
- restoring property
- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

Less is better.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.
• A balance sheet with less debt than other companies in its particular industry.
• A P/E ratio no higher than average.
• A dividend yield that suits your particular needs.
• A below-average dividend pay-out ratio.
• A history of earnings and dividends not pockmarked by erratic ups and downs.
• Companies whose ROE is 15 or better.
• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?

Bullbear Buffett

Wednesday, 10 June 2026

Alibaba is in a transitional phase

Key Stock Data

P/E Ratio (TTM)

EPS (TTM)

Market Cap

Shares Outstanding

Public Float

Yield

Latest Dividend

Ex-Dividend Date

Short Interest (05/29/26)

Shares Sold Short

Change from Last

Percent of Float

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All equity security investments present a risk of loss of capital

The Ultimate Hold-versus-Sell Test

Some thoughts on Analysing Stocks (KISS)

Benjamin Graham

Sell the losers, let the winners run.

Investment Style

Warren Buffett

Political and Economic News

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