Should You Hold or Fold Alibaba Stock Ahead of Q2 Earnings?

Alibaba Group Holding Limited BABA is scheduled to report second-quarter fiscal 2026 results on Nov. 25.

For the fiscal second quarter, the Zacks Consensus Estimate for revenues is pegged at $34.43 billion, suggesting a 2.17% rise from the year-ago quarter’s reported figure.

The Zacks Consensus Estimate for earnings is pinned at 66 cents per share, indicating a decline of 69.3% from the prior-year quarter’s reported figure.

Alibaba has a mixed earnings surprise history. In the last reported quarter, the company delivered a negative earnings surprise of 3.29%. Its earnings beat the Zacks Consensus Estimate in two of the trailing four quarters and missed the same twice, the average surprise being 0.97%.

Alibaba Group Holding Limited Price and EPS Surprise

Alibaba Group Holding Limited price-eps-surprise | Alibaba Group Holding Limited Quote

Earnings Whispers for BABA

Our proven model does not conclusively predict an earnings beat for Alibaba this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

BABA has an Earnings ESP of 0.00% and a Zacks Rank #5 (Strong Sell) at present. 

You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors to Note for BABA Ahead of Q2 Results

Investors should exercise caution ahead of Alibaba's second-quarter fiscal 2026 earnings, as mounting challenges threaten to undermine the e-commerce giant's performance. The September quarter is likely to have reflected intensifying headwinds that are expected to weigh heavily on results.

China's deflationary environment deepened during the quarter, with consumer prices falling 0.4% year over year in August and 0.3% in September, signaling persistent weakness in domestic demand that constrains Alibaba's core commerce business. The company's aggressive investments in quick commerce and instant delivery services, while strategically necessary, compressed margins as management prioritized market share over profitability. These heavy subsidies for Taobao Instant Commerce expansion are likely to have eroded adjusted EBITA significantly.

Competitive pressures from PDD Holdings' PDD value-focused positioning continued to intensify, forcing Alibaba into destructive price wars that squeezed margins further. The company's customer management revenue growth momentum decelerated as the positive impact from software service fees implemented in fiscal 2025 began diminishing, creating difficult year-over-year comparisons.

While Cloud Intelligence Group maintained momentum with AI-related revenues exceeding 20% of external customer revenues, the RMB 380 billion three-year commitment to AI and cloud infrastructure front-loaded massive capital expenditures that will pressure near-term profitability. The proposed Banma Network Technology spin-off announced in August signals capital reallocation away from core operations.

Revenue growth is likely to have remained constrained by weak consumer sentiment and sluggish retail sales growth. These structural headwinds position Alibaba unfavorably for sustained earnings growth despite cloud segment strength.

BABA Price Performance & Stock Valuation

Alibaba shares have surged 80.8% in the year-to-date period, outperforming the industry, the Zacks Retail-Wholesale sector and the S&P 500 index’s return of 6%, 2.3% and 14.2%, respectively.

BABA faces tough competition from Amazon AMZN, JD.com JD and PDD Holdings, among others. While AMZN and JD have declined 1% and 18.1%, respectively, in the year-to-date period, PDD has gained 16.4%.

Year-to-Date Price Performance

BABA is trading at a premium with a forward 12-month P/S of 2.36X compared with the Zacks Internet - Commerce industry’s 2.26X, reflecting a stretched valuation.

BABA’s P/S F12M Ratio Depicts Stretched Valuation

Investment Thesis

Alibaba's second-quarter fiscal 2026 results will likely underscore why investors should avoid the stock at current levels. Despite trading at a premium valuation, the company faces deteriorating fundamentals as China's deflationary pressures persist and PDD Holdings' aggressive competition erodes market share through relentless price wars. Management's massive RMB 380 billion AI infrastructure commitment and quick commerce subsidies are compressing margins significantly while revenue growth decelerates amid weakening consumer sentiment. The Banma spin-off and intensifying rivalry suggest limited near-term catalysts. Prudent investors should wait for a more attractive entry point after earnings clarity emerges and valuation concerns diminish substantially.

Conclusion

Given China's persistent deflation, intensifying competition from PDD Holdings, and heavy AI investments pressuring margins, investors should remain cautious on Alibaba ahead of the second quarter of fiscal 2026 earnings. Waiting for a clearer turnaround signal and a more attractive entry point appears prudent given current uncertainties.

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This article originally published on Zacks Investment Research (zacks.com).

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