Taotian: E-commerce is gradually recovering, focusing on “putting users first”. On the retail side, January-March 2024, Social Zero grew 4.7% year over year. Among them, online retail sales of physical goods increased 11.6% year over year. On the logistics side, China's express delivery business increased 25.2% year-on-year in the first quarter.
Looking ahead to the 24Q4 fiscal quarter, we expect Alibaba's online GMV to achieve healthy year-on-year growth as e-commerce recovers, but due to the decline in overall take-rate due to the increase in GMV of Taobao merchants, the growth rate of customer management revenue may be slower than the growth rate of GMV. Taotian will firmly invest in the “customer first” strategy, continue to increase interactive content, and actively expand the range of cost-effective products. For example, on March 26, 1688 will be fully purchased. We expect that it may further improve its low price mentality. Due to increased investment, we expect Taotian Group's adjusted EBITA during the 24Q4 fiscal quarter or a slight year-on-year decline.
Cloud intelligence: Public clouds are growing healthily, and Alibaba Cloud is reducing prices across the board. We expect Alibaba Cloud's intelligent revenue to grow year over year in 24Q4, with revenue from public cloud products and services expected to grow healthily.
On February 29, Alibaba Cloud announced price reductions for all products, involving more than 100 products and more than 500 specifications. Among them, cloud servers were reduced by up to 36%, object storage OSS was reduced by up to 55%, and cloud databases were reduced by up to 40%. We expect ARPU in the short term or impact on cloud business, adjusted EBITA, and expect to further expand the number of public cloud customers and the scale of cloud usage in the long term.
AIDC, rookies, and local life are expected to grow strongly. On the AIDC side, we expect AliExpress, Trendyol, etc. to keep AIDC revenue growing rapidly during the 24Q4 fiscal quarter. Due to increased international business investment, we expect adjusted EBITA losses or expansion. Cainiao and local life are also expected to achieve rapid growth, but adjusted EBITA losses may expand as investment increases.
Focus on core business and withdraw Cainiao's listing application. The company's strategy focuses on core business, increasing investment in e-commerce and cloud computing at home and abroad, and short-term profit growth may be under pressure.
On March 26, Ali announced that it plans to buy Cainiao's minority shareholders' shares and employee shares for US$3.75 billion, and to withdraw Cainiao's listing application. In the future, Cainiao will be a component of Ali's core business and an important e-commerce infrastructure to achieve better collaboration with e-commerce business.
Investment advice: Maintain a “buy” rating. We expect Ali's revenue for the 2024-2026 fiscal year to be 9391/9961/1068.5 billion yuan; non-GAAP net profit of 1563/1537/164.8 billion yuan. Based on core e-commerce 10x 2024e P/E, cloud computing 3x 2024e P/S, big entertainment and other businesses 2x 2024ep/s, Alibaba Hong Kong Stock (9988.HK) was given a target price of HK$109/US stock (BABA.N) of $111, maintaining a “buy” rating.
Risk warning: The impact of industry policies on business exceeded expectations, progress in e-commerce and cloud computing fell short of expectations, and changes in the macro environment exceeded expectations.