2QFY25 revenue is expected to be in line with expectations, and non-GAAP net profit to mother is lower than agreed

We expect Alibaba's 2QFY25 (3Q24) revenue to increase 6.6% to 239.7 billion yuan, in line with consistent expectations; we expect adjusted EBITA to fall 7.7% year over year to 39.5 billion yuan, and non-GAAP net profit to mother will fall 15.8% year on year to 33.8 billion yuan, mainly due to increased investment by Taotian Group.

Key points of interest

Weak macro consumption and technical service fees affect GMV performance, and the gap between customer management revenue and GMV year-on-year growth is expected to gradually narrow. We expect domestic retail GMV to increase by 4% in 2QFY25. The year-on-year growth rate slowdown is mainly due to 1) weak macro consumption, and the year-on-year growth rate of total retail sales of online physical goods in July and August slowed down compared to the second quarter; 2) the 0.6% increase in technical service fees will be squeezed out to a certain extent on transactions sensitive to monetization rates. In terms of revenue, we expect 2QFY25 customer management revenue (CMR) to increase 2% year on year, and the monetization rate will gradually stabilize, mainly due to 1) new technical service fees collected from September 1, '24, and 2) the gradual impact of new advertising products such as global promotion. Looking ahead, we expect Taotian Group's monetization rate to stabilize and then rise in the second half of FY25. Furthermore, after Taobao is connected to WeChat Pay, we determine that it is expected to bring more than 0.2 billion new purchasers to Ali in the long term and promote the healthy growth of Alibaba's GMV.

Overseas international business UE is improving, and cloud computing revenue may accelerate quarterly. We expect 2QFY25 international digital business revenue to increase 31% to 32.2 billion yuan, with an adjusted EBITA loss of 3.5 billion yuan, showing a continuous month-on-month narrowing trend, with an average single average UE improvement; we expect 2QFY25 cloud computing revenue to increase 7.8% to 29.8 billion yuan, focusing on public cloud and AI contributions, which is expected to drive the year-on-year recovery of cloud computing revenue. We expect FY25 cloud computing revenue to grow 9% year over year.

Taotian Group's investment has increased, and 2QFY25 Taotian and Group EBITA may be under pressure. We expect 2QFY25's adjusted EBITA to fall 6% year on year to 44.3 billion yuan, mainly due to 1) weakening of the loss reduction base effect of other businesses, 2) increased user experience side investment such as 88VIP, and the decline in Taotian Group's EBITA may drive the Group EBITA decline 7.7% year over year to 39.5 billion yuan. Local lifestyle, entertainment and other businesses will maintain a year-on-year decline in EBITA.

Profit forecasting and valuation

Currently, the company's US and Hong Kong stocks are trading 11/9 times the non-GAAP price-earnings ratio for the 2025/2026 fiscal year. We lowered our revenue forecasts for fiscal year 2025 and fiscal year 2026 by 1% and 1% to 1011.9 billion yuan and 1,104.8 billion yuan, mainly due to pressure on the revenue of the Taotian Group; we lowered non-GAAP net profit of 2% and 3% to 156.6 billion yuan and 175.2 billion yuan, mainly due to increased investment by Taotian Group. We maintain the target prices of US stocks and Hong Kong stocks at HK$112 and HK$109, mainly due to the upward shift in the industry valuation center and maintaining outperforming industry ratings. The non-GAAP price-earnings ratio corresponding to the 2025/2026 fiscal year was 11/9 times, with room for 2% and 6% increase, respectively.

risks

The macroeconomy and consumption are weak; e-commerce competition is intensifying.