Alibaba recently released its March quarter results, and while the revenue was slightly up by 2% year-over-year at $30.32 billion, there’s still room for improvement in terms of revenue growth. We initially expected a stronger rebound in Chinese demand for the company’s e-commerce business in the first half of 2023, but it seems the recovery might take a bit longer. The Chinese economic data for April wasn’t as impressive as anticipated, indicating a slower path to recovery. Retail sales, for example, rose by 18.4%, lower than the forecasted 21%.

However, we firmly believe that China’s recovery is underway, even if it will take some time to reach its full potential. We’ve been bullish on Alibaba stock since late November and have seen positive signs of improvement. Adjusted EBITA, a non-GAAP measurement, surged by 60% year-over-year, and non-GAAP net profit increased by 38% year-over-year. With the Chinese economy gradually recovering, we expect profitability to continue improving toward the first half of 2024. That’s why we believe there’s an upside ahead and recommend investors to take advantage of the current pullback and explore entry points at current levels.

Now, let’s talk about the recent spin-off news. Alibaba plans to spin off its cloud segment into a separate publicly traded company. Although this move has caused some short-term volatility in the stock, we think it’s a positive step. Alibaba’s cloud business dominates the Chinese market and has become the second-largest player in the Asia-Pacific region. Moreover, the global cloud computing market is projected to grow at a compound annual growth rate of 18.8% between 2022 and 2028. So, despite some concerns, we see this as an opportunity for Alibaba to solidify its leading position in the expanding cloud market.

When it comes to valuation, Alibaba stock is currently trading at a relatively cheap price with a P/E ratio of 21.34x on a TTM basis. Compared to its peer group, the stock seems undervalued, considering its growth prospects. Wall Street analysts seem to share our bullish sentiment, with 44 out of 49 analysts giving a buy rating for the stock. The median sell-side price target is $140, with a potential upside of around 62-63%.

In conclusion, we remain optimistic about Alibaba as a value stock with improving profitability. We anticipate revenue growth to rebound in 2024 as the Chinese economic recovery gains momentum. Additionally, we believe the cloud division spin-off and future demand for cloud services will further drive the company’s success. So, if you’re considering investing, we think there are attractive entry points at the current levels. It might be a good time to buy the pullback.