Matters:

Alibaba is about to release financial results for the second quarter of fiscal year 2025.

Guoxin Internet's opinion: 1) We expect 2QFY25 revenue +6% year-on-year, adjusted EBITA profit margin of 18%: Looking at revenue, we expect Alibaba to achieve revenue of 237.2 billion yuan and YoY +6%. We expect the revenue growth rate to increase slightly from month to month this quarter, mainly due to the acceleration of Taotian CMR revenue growth. We expect the revenue growth rates of Aotian/International Digital Commerce/Local Life/Cainiao/Cloud Intelligence to be 1%/30%/16%/18%/8%, respectively. The 2QFY25 adjusted EBITA margin was 18%, down 1.1 pct year on year, adjusted EBITA profit YoY -1%, non-GAAP net interest rate 15%, down 2.6 pct year on year.

We believe that the main reason for the decline in the Group's adjusted EBITA profit margin is that Taotian Group has increased investment, especially in terms of user experience. For example, 88VIP return and shipping subsidies continue to increase with the number of members. Looking ahead to the December quarter, there is still uncertainty about the scale of platform investment and subsidy intensity affected by competition under the Double Eleven promotion. Looking ahead to this year's Double 11 promotion, all companies are increasing their investment, which may affect profit margins in a phased manner. Currently, the biggest year-on-year increase in activity on various platforms is Taotian. This year, the Double 11 platform invested 30 billion vouchers and red envelopes, far exceeding 10 billion red envelopes in 2023. The promotion efforts of platforms such as JD, Pinduoduo, and Doukuei have all increased slightly. In terms of share, we expect the growth rate of Double 11 Taotian GMV to approach the market. In the long run, it is expected to enhance merchant confidence and lay the foundation for increasing the commercialization rate in the future.

2) Maintaining superior market ratings: Ali continued to invest in core business after restructuring, reducing costs and increasing efficiency in non-core businesses. Currently, the company's stock price corresponds to FY2025 12 times PE. We slightly adjusted the company's FY2024-FY2026 revenue forecast to 997.2/1091.8/1199.2 billion yuan, with an adjustment of -0.2%/-0.2%/-0.2%, which mainly reflects a slight decrease in Taotian Group's GMV growth rate and limited improvement in CMR growth rate; adjusted the company's FY2024-FY2026 adjusted net profit forecast to 149.2/171.8/182.3 billion yuan. The adjustment was +1.5%/-0.2%/-0.2%, mainly to reflect that international commercial investment was manageable this quarter and UE improved significantly from month to month, which was partly offset by pressure on Taotian's profits. We valued the company according to SOTP and gave Taotian Group the corresponding FY2025 12-13xPE, Cloud Intelligence Group 3xPS, and Alibaba International Digital Business Group 1xPS, and adjusted the company's target price to HK$120-127, an increase of 26%/23%, 17%/23% from the current growth space, maintaining a “superior to the market” rating.

Commentary:

Overall: With 2QFY25 revenue +6% year-on-year and adjusted EBITA margin of 18% 2QFY25, we expect Alibaba to achieve revenue of 237.2 billion yuan and YoY +6%. We expect a slight month-on-month increase in revenue growth this quarter, mainly due to the acceleration of Taotian's CMR revenue growth rate, and the revenue growth rate of Aotania/International Digital Commerce/Local Life/Cainiao/Cloud Intelligence is expected to be 1%/30%/16%/18%/8%, respectively.

The 2QFY25 adjusted EBITA margin was 18%, down 1.1 pct year on year, adjusted EBITA profit YoY -1%, non-GAAP net interest rate 15%, down 2.6 pct year on year. We believe that the main reason for the decline in the Group's adjusted EBITA profit margin is due to increased investment by Taotian Group, especially in terms of user experience. For example, 88VIP return and shipping subsidies continue to increase with the number of members. Looking ahead to the December quarter, the scale of Double Eleven's investment and subsidy intensity may still change due to competition.

Taotian Group: GMV is expected to be +5% YoY, CMR revenue +2% YoY. The GMV and CMR gap narrows significantly month-on-month. It is expected that Taotian's GMV growth rate will be close to the market this quarter. The share will stabilize, and the GMV and CMR growth rate GAP will narrow month-on-month. Looking at the industry market, online physical retail sales were +6% year-on-year in July-August 2024, down slightly from Q2; the company began charging 0.6% software service fees for all merchants in September, and some low-margin merchants gradually withdrew, which had a negative impact on the platform's GMV. In terms of monetization, benefiting from the gradual spread of software service fees and sitewide promotion, the CMR growth rate rebounded slightly from month to month, and the decline in the monetization rate narrowed. It is expected that with the second half of the fiscal year, the monetization rate will stop falling and pick up as all advertising tools aimed at small and medium-sized businesses are put into use in the second half of the fiscal year.

It is worth mentioning that Taobao launched WeChat Pay in September. According to Questmobile, WeChat currently has about 0.16 billion monthly active users for Alipay. Opening up can help Taotian expand potential consumers and increase GMV. Currently, you can directly click on Taobao links within the WeChat app to complete orders through WeChat Pay, and there is no need to go back to the Taobao app throughout the process.

Looking ahead to this year's Double 11 promotion, all companies are increasing their investment, which may affect profit margins in a phased manner. Currently, the biggest year-on-year increase in activity on various platforms is Taotian. This year, the Double 11 platform invested 30 billion vouchers and red envelopes, far exceeding 10 billion red envelopes in 2023. The promotion efforts of platforms such as JD, Pinduoduo, and Doukuei have all increased slightly. In terms of share, we expect the growth rate of Double 11 Taotian GMV to approach the market. In the long run, it is expected to enhance merchant confidence and lay the foundation for increasing the commercialization rate in the future.

International digital commerce: Revenue is expected to be +30% year-on-year, adjusted EBITA profit margin -12%, and absolute business losses are controllable. Alibaba's international business revenue for the quarter was 31.8 billion, +30% compared to the same period last year. The adjusted EBITA profit margin was -12%, down 10 pct from the same period last year. The amount of losses was manageable, and the loss rate narrowed slightly compared to the same period last year.

Investment advice: maintain an “better than the market” rating

After the restructuring, Ali continued to invest in core business, reducing costs and increasing efficiency in non-core businesses. Currently, the company's stock price corresponds to FY2025 12 times PE. We slightly adjusted the company's FY2024-FY2026 revenue forecast to 997.2/1091.8/1199.2 billion yuan, with an adjustment of -0.2%/-0.2%/-0.2%, which mainly reflects a slight decrease in Taotian Group's GMV growth rate and limited improvement in CMR growth rate; adjusted the company's FY2024-FY2026 adjusted net profit forecast to 149.2/171.8/182.3 billion yuan. The adjustment was 1.5%/-0.2%/-0.2%, mainly to reflect that international commercial investment was manageable this quarter and UE improved significantly from month to month, which was partly offset by pressure on Taotian's profits. We valued the company according to SOTP, and gave Taotian Group the corresponding FY2025 12-13xPE, Cloud Intelligence Group 3xPS, and Alibaba International Digital Business Group 1xPS, adjusted the company's target price to HK$120-127, an increase of 26%/23%, from the current growth space, and maintained a “superior to the market” rating.

Risk warning

Policy risks, market risks such as increased competition for new entrants, macroeconomic systemic risks, etc.