Overall framework: An ecosystem of continuous focus and a constantly changing organizational structure. “A group of sentimental and righteous people do a sentimental and righteous thing together.” To study Ali, we need to start with that group of sentimental and righteous people. After 20 years, Ali has built an ecological map of seven major business segments, with e-commerce and cloud computing as the core, and many businesses are at the top of the industry. Faced with market challenges, they experienced a shift from e-commerce to diversified expansion to focus on strengthening, along with flexible adjustments to the organizational structure, such as the “1+6+N” transformation, and had clear goals for independent financing and listing. Currently, Ali's strategy is also very clear: returning to core business, reducing holdings of non-core investments, rearranging strategic priorities, and at the same time clarifying the strategic direction of “putting users first” and “focusing on artificial intelligence”. By optimizing capital allocation, they choose to return cash to shareholders, and seek dynamic balance and strategic upgrades for long-term development in a continuously focused ecosystem and organizational structure that continues to change.

Understand what kind of company Ali is in terms of business model and revenue breakdown. Ali's overall revenue of 24FY is about 940 billion, corresponding to the adjusted net profit of Ebita of 165 billion yuan and a margin of 17.6%. Taotian accounts for 43% of Ali's revenue structure, with a balanced distribution of international commerce, cloud intelligence, rookie, local lifestyle, and big entertainment. We expect the Group's total revenue CAGR to be at the center of a high single digit in the future. As the largest comprehensive e-commerce platform in China, the core business revenue side must have a lot of beta attributes of e-commerce in China. Secondly, fluctuations in core Aotan's revenue mainly depend on the frequency of e-commerce users' purchases and the platform's take-rate. Furthermore, from the revenue side, international digital commerce is taking on more responsibility for growth. The optimization of cloud business structures and advances in AI technology have brought us expectations for a new round of growth curves. Separated from the profit structure, Taotian's annual contribution of about 200 BillionEbita is a core responsibility. In the end, gross margin increased steadily, and sales expenses were the core variables and main expenses of overall expenses.

Taotian Group: mud and growth, the giants fight back. The overall revenue of 24FY is about 345.9 billion, and the adjusted Ebita margin is about 45%. The revenue center for the next three years is expected to be in the low single digits of CAGR. By dismantling Taotian's revenue and profit structure, we believe that the essence of the Taotian Group's business model is platform traffic monetization, and future growth will mainly depend on changes in traffic value (high-value active users) and monetization efficiency (take rate). With the rise in traffic from Pinduoduo's low-price e-commerce and Doukuei's interest e-commerce, Ali's e-commerce market share has shrunk from about 60% in 2020 to about 40% in 2023. Apparently, Ali missed out on the sinking market due to Taotte's loss and Pinduoduo's acceptance of the low price demand brought about by consumer ratings. What is essentially reflected behind the inability to fight back is differences in values between platforms and differences in algorithm logic. Changes are also taking place. Douyin traffic has peaked, e-commerce growth has begun to slow, and the impact on e-commerce shelves has weakened. A slowdown in the growth rate of live streaming e-commerce represented by Douyin is inevitable in history. The giants definitely fought back, changed their strategy, and “customer first” returned to scale growth. A series of user-side and merchant side policies were introduced one after another. GMV returned to double-digit growth during the 24Q1 and 618 promotions, and the elephant turned around. We are looking forward to the future!

Ali Overseas: Cross-border+local, retail+wholesale, all-round multi-dimensional overseas. The overall revenue of 24FY is about 100 billion, the adjusted Ebita margin is about -8% (loss is expected to expand in 25 years), and the revenue CAGR center for the next three years is 20%. Alibaba Overseas consists of international retail platforms (AliExpress, Lazada, Trendyol, Daraz, Miravia) and Alibaba's international website. Among them, AliExpress is Ali's cross-border e-commerce platform for global consumers. Local e-commerce models include Southeast Asia's leading platform Lazada, Turkish e-commerce leader Trendyol, South Asian e-commerce Daraz, and Spanish high-end e-commerce Miravia. Among them, Lazada and Trendyol are expected to contribute more than half of the revenue share of international retail, Daraz Miravia is currently still being adjusted and nurtured, and is not very large. By going overseas in multiple dimensions, Ali aims to serve 2 billion active global buyers by 2036.

Cloud Intelligence Group: What possibilities will AI bring to China's largest cloud vendor? The overall revenue of 24FY's cloud business is about 106.4 billion, and the adjusted Ebita margin is about 5.8%, contributing 6.1 billion to the Group's adjusted Ebita-level profit. The revenue center for the next three years is expected to be 10%. Alibaba Cloud is experiencing revenue structure optimization, reduction of low-profit projects, and growth driven by public cloud and AI products. FY25 EBITA margin is expected to increase further. Facing the challenge of homogenization of IaaS in the industry, Alibaba Cloud broke through the advantages of broad computing power coverage, price competition, flexible computing, and full-stack services, and maintained a leading position in the PaaS field in particular. The “Cloud Pin Integration” strategy strengthens the SaaS market layout and uses the ecosystem to drive demand for cloud use. Furthermore, domestic competition for big models has intensified, and Alibaba Cloud has seized the opportunity of the OpenAI API ban to launch alternatives, accelerate AI investment and layout, integrate infrastructure and big models, and create a software-hardware collaborative ecosystem. The aim is to transform AI into a new revenue growth pole, use its advantages in computing power and data, and work with cloud computing to build a future growth engine.

Local life: traffic entry, offline connection. Ali's local lifestyle sector is centered around Hungry and Gaode maps, gaining greater autonomy through “1+6+N” organizational changes. FY24's revenue is about 60 billion, EBITA losses are about 10 billion, and the future revenue Cagr center is expected to be 10%. Organizational restructuring brought new opportunities, and Ali CEO Wu Yongming clarified the “user-first, AI-driven” strategy after taking over as chairman. According to our estimates, the current Hungry Front Office UE has been successfully corrected, but it is still insufficient to fully cover the middle and back office and other expenses, showing an overall loss. Currently, Hungry's instant retail business is the second growth curve, and Hummingbird is ready to provide immediate logistics services to third parties. As one of the five products in the Chinese internet industry that have reached 700 million MAU, it can be said that Gaode Maps has always been a difficult exploration in terms of commercialization. Currently, we determine that in addition to advertising as the main source of revenue, the current strategy focuses on the local lifestyle sector. On the one hand, it is developing the integrated online car-hailing business, PK Didi, and on the other hand, expanding to in-store services, PK Meituan.

DME+ other businesses: Big Entertainment's losses have narrowed, and other diversified innovative businesses can be expected. Overall, there are two businesses with a low single-digit growth rate on the revenue side. Among them, Big Entertainment Group's revenue mainly comes from Youku and Alibaba Pictures, with 24FY revenue of 20 billion+ and losses at the Ebita level of 1.6 billion; other businesses, 24FY's revenue is close to 200 billion, and losses at the Ebita level are close to 10 billion.

The recovery of offline entertainment in the DME business was strong, with profits for four consecutive years; in other businesses, the decline in Gaoxin retail was offset by Hema's growth, showing that the challenges and potential faced by Ali in diversified and innovative business fields coexist.

Alibaba Valuation System Research: How do giants set prices? We used three methods to price giants and explained in detail our understanding of Alibaba's valuation. Our comprehensive target market value for Ali was 1.94 percent. We expect the revenue CAGR of Ali's Chinese business in the next three years to be high in single digits (depending on macroeconomics, super beta). The main e-commerce business model is to collect advertising fees and commissions. The business model is mature and sustainable. The competitive landscape is extremely intense. In the past, Ali has been losing share (faced successive shocks from JD, Taobao, and Doukuei, falling from 72% in '17 to below 40% now), which is the core reason for its pressure on valuation. Looking ahead to the next two years, the decline in e-commerce growth is a definite trend. Supported by Alibaba's shareholder returns of over 6%, Alibaba can be viewed in the future using the logic of consumer stocks.

Review: A ten-year history of Ali's growth, half of the history of Internet changes. As one of the most weighted stocks in the Hang Seng Technology Index, reviewing Ali's stock price trend over the past ten years, the company's stock price was greatly affected by the beta of Hang Seng Technology as a whole, especially liquidity factors from the parent side, which is poor in predictability; however, what ultimately determines the core of Ali's valuation is a fundamental element on the EPS side, and whether it is market share performance from fundamentals, profit increases due to cost reduction and efficiency, or potential EPS increases in shareholder returns, changes in fundamentals are opportunities we can seize through research. It inspired us as individual stock researchers in the industry. Our research framework for Ali focuses on changes on the EPS side. We are also looking forward to the results of the giant's counterattack!

Profit forecasting and valuation analysis. We expect Taotian Group's revenue CAGR to be in single digits in the next three years; the revenue CAGR of the International Digital Business Group will be at the center of 20% in the next three years; Cainiao will have a 20% Cagr in the next three years; Yunzhi Group's three-year low double-digit CAGR center; in the next year, due to Taotian's increased investment level, the 2025 FY Ali Adjust Ebita Margin is expected to drop to 15.3% (17.5% for 24FY). We expect the compound growth rate of Ali's overall revenue in the next three years. The 2025FY Adjust Ebita will be 155.2 billion, or -5.9% year-on-year, but Ebita's profit is expected to stabilize thereafter. We used the SOTP valuation method to arrive at a comprehensive target market capitalization of 1.94 percent.

Risk warning. Macroeconomic risk, industry competition risk, overseas business development risk, organizational structure reform risk, major Hong Kong stock listing conversion progress risk, technology development risk, policy risk.