Alibaba Group Holding Ltd. (BABA, Financial) has reported a mix of performance outcomes for fiscal year 2024. While the company's international commerce segment, under the Alibaba International Digital Commerce (AIDC) division, has shown remarkable growth, it continues to face challenges within its core markets.

Despite these challenges, Alibaba retains durable competitive strengths in Chinese e-commerce through its leadership in mobile payments, social commerce and consumer logistics. The company's strategic investments in emerging segments like cross-border commerce, cloud computing and customer management software for retailers are promising, though their success is not guaranteed given the challenging macroeconomic environment and execution risks.

In the near term, the stock is likely to remain volatile, reflecting the growth struggles witnessed recently. However, if Alibaba can demonstrate consistent market share gains in China while resuming steady earnings growth, its valuation multiple may expand again. For investors with a higher risk tolerance, shares could potentially return over 30% within 12 months, according to analyst forecasts.

Alibaba's path to growth: International success

Alibaba posted 7% year-over-year revenue growth for the March quarter, but income from operations fell by 3%. Overall net income climbed for the entire 2024 fiscal year by 9%, but results have had to be more consistent recently.

Indeed, it does not feel like stiff competition dented Alibaba's cross-border e-commerce operations. Its international retail division posted solid momentum driven by robust order growth on platforms such as AliExpress. Other initiatives, such as the AliExpress Choice initiative, further boosted performance, which improved the customer experience with better product selection.

Source: Alibaba

In the wholesale space, Alibaba has enjoyed the benefit of delivering value-added services across borders. The Chinese wholesale commerce area is expanding. International commerce net revenues shifted back and forth for the group at $3.8 billion in the fourth quarter. This reflected staggering year-over-year growth of 45%, which says a lot about the strong momentum of the company's international businesses recently.

As a final point, the company has increased its focus on the growth of its AliExpress platform through logistic integration with its Cainiao network. Alibaba aims to increase AliExpress' brand awareness and user experience globally by increasing investments in key markets across Europe and Southeast Asia.

A $5 billion buyback plan: A bold move amid investor concerns and market challenges

In May, Alibaba announced plans to raise $5 billion through a convertible bond offering. The company said proceeds would fund share buybacks at $80.80 per share. This suggests management sees value in repurchasing stock at current levels.

However, some investors needed clarification on the deal's complex structure. There are also worries over how accessible the new cash on Alibaba's balance sheet will be for general corporate purposes.

Analysts see the potential for the stock to increase in value, but point to risks that limit the upside or lead to further declines. For instance, Hargreaves Lansdown notes some "green shoots" of improvement in Alibaba's business, but progress overall remains sluggish.

Similarly, Morningstar recently raised its price target for Alibaba by 2% to $96 per share, implying undervaluation. This target is based on expectations that consumer discretionary spending in China will rebound, allowing the company to regain market share and resume earnings growth. However, competition and regulatory hurdles remain top concerns.

The road ahead: Opportunities abound amid economic and competitive hurdles

While Alibaba has promising opportunities in areas like international expansion and artificial intelligence, the company faces an uphill battle with numerous challenges impacting its business.

The country's gross domestic product growth has slowed to an estimated 3% to 4% annually from the 6% to 7% in earlier years. This slowdown, together with the impacts of Covid-19, weakened consumers' confidence and theatrically trimmed discretionary spending. Less demand among consumers is the last thing a company with a heavy dependence on Chinese retail, like Alibaba, would be concerned with.

Together with macroeconomic concerns, Alibaba is being competitively squeezed by some business lines. Within Chinese e-commerce, Alibaba has been losing market share to JD.com (JD, Financial) and PDD Holdings' (PDD, Financial) Pinduoduo. The company's operations in this segment are growing only at single-digit rates year over year—pretty slow compared to the hypergrowth Amazon (AMZN, Financial) and Microsoft's (MSFT, Financial) cloud businesses have attained.

Alibaba Cloud faces uphill competition from dominant players like Amazon Web Services and Microsoft Azure. These Western tech giants have far greater global brand recognition and trust than Alibaba Cloud.

Between economic struggles and fierce competition, there are legitimate concerns about Alibaba's ability to execute its growth strategy. The company's core commerce segment makes up most of the total revenue, so any deeper slowdown here would be very impactful.

Alibaba is trying to expand into new frontiers in China and abroad, but execution risks are elevated given the challenging macro environment. More specifically, the Chinese retail landscape looks particularly challenging in the near term. Given economic uncertainties, consumer discretionary spending remains under pressure. This weighs heavily on Alibaba's massive e-commerce platforms like Taobao and Tmall, which rely on Chinese consumers' willingness to shop.

Only when broader consumer confidence rebounds will it be easier for the stock to recapture previous highs. Markets will watch closely for signs of stabilization in China's commerce trends. But the environment is likely to remain cloudy in the short term.

The takeaway: Cautious optimism

Despite the challenges, there are still reasons for optimism if investors take a long-term view. While the stock has struggled recently, Alibaba retains competitive strengths in Chinese e-commerce through its mobile payments, social commerce and consumer logistics leadership. As China's economy expands over time, Alibaba is poised to benefit.

The company also has promising initiatives in emerging segments like cross-border commerce, cloud computing and customer management software for retailers. Significant investments in these areas could potentially pay off.

However, Alibaba's growth trajectory remains unclear. Much depends on how successfully the company can execute new growth drivers while shoring up its core Chinese e-commerce operations. Investors need more evidence these investments will translate into profits.

In the near term, Alibaba's stock will likely remain volatile. The valuation reflects the growth struggles witnessed recently. However, if the company can demonstrate consistent market share gains in China while resuming steady earnings growth, its valuation multiple may expand again.

According to analyst forecasts, the stock could potentially return over 30% within 12 months for investors with a higher risk tolerance. However, ongoing economic and regulatory headwinds in China make this a far from sure bet.

Until China's business climate stabilizes, investors may want to approach the stock cautiously. Consider waiting for clarity on Alibaba's growth rebound before making major positions, but keep it on your watchlist for when Chinese consumption trends improve.