Alibaba needs to branch out beyond its core business for its stock to move higher, but one much-discussed growth path—selling to U.S. and European consumers—has little chance of success, RBC Capital Market's lead Internet analyst said Thursday.
Mark Mahaney said the Chinese e-commerce company should continue to make investments in businesses with significant foreign operations, as it did throughout 2014, but RBC is skeptical the online marketplace can succeed outside of China.
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"To do kind of a full, direct approach into the U.S. and Europe—the chances of them succeeding with that are probably pretty limited," Mahaney told CNBC's "Squawk Alley."
About two-thirds of Alibaba's sales still come from its consumer-to-consumer marketplace Taobao, where it primarily earns revenue from advertising and marketing services.
Alibaba's expansion into other domestic business segments within China, such as cloud computing, could push shares materially higher, Mahaney added. Alibaba leases server space to other businesses through its Aliyun cloud computing unit, which is similar to Amazon Web Services.
While the force behind Alibaba's next leg higher on equity markets remains yet to be seen, its valuation remains "eminently justifiable," Mahaney said.
On Thursday, Alibaba reported quarterly earnings that beat Wall Street's expectations on the top and bottom line. The company posted fourth-quarter earnings excluding items of 48 cents per share in the quarter ended March 31. Revenue rose 45 percent to $2.81 billion.
Before Wednesday's close, the stock had fallen more than 33 percent since hitting a record high of $120 in November. Shares of Alibaba traded at $86.04 on Thursday afternoon, up 7.55 percent on the day.
The company also said on Thursday that Chief Executive Jonathan Lu will be replaced on Sunday by Chief Operating Officer Daniel Zhang.
Mahaney said the earnings erased one of the biggest doubts among investors: whether Alibaba can make more money from sales on mobile devices. Monetization rates had been declining year over year, but that trend reversed, he added.
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Alibaba's gross merchandise volume from mobile accounted for 51 percent of total GMV, up from 42 percent in the December quarter. Take rates, or the percentage of people who take some action on a website, stood at 2.3 percent on desktop and 1.7 percent on mobile, Mahaney noted.
"They are converging and the company seems awfully confident that they will long term," he said. "We think that's probably right, but this is not a multiquarter phenomenon. This should be a a multiyear phenomenon."
—Reuters and CNBC's Reem Nasr contributed to this story.