Incidents:

On November 15, 2024, the company announced FY2025Q2 financial report (corresponding to the natural year 2024Q3), achieving operating income of 236.5 billion yuan (YoY +5%, QoQ -3%); operating profit of 35.2 billion yuan (YoY +5%, QoQ -2%), adjusted EBITDA of 47.3 billion yuan (YoY -4%, QoQ -7%), net profit of 43.5 billion yuan (YoY +63%, QoQ +81%), net profit to mother 43.9 billion yuan (YoY +58%, QoQ +81%), non-GAAP net profit 36.5 billion yuan (YoY -9%, QoQ -10%).

Our point of view:

Taotian's commercialization strategy is progressing steadily, focusing on high-quality GMV growth. 2024Q3 Taotian Group's revenue increased 1% year over year to 99 billion yuan, of which customer management revenue increased 2% year over year. Online GMV growth benefited from a year-on-year double-digit increase in order volume, but was partially offset by a decrease in average order amount, and the overall monetization rate remained stable year over year; the 2024Q3 section adjusted EBITA 44.6 billion yuan (yoy -5%), and the adjusted EBITA margin was 45%.

1) Order volume increased in double digits year over year, mainly due to the impressive increase in the frequency of purchases by large market users, and the continuous upgrading of the Taobao experience. The core user group, marked by 88VIP, continued to increase, and the membership size reached 46 million by the end of the 2024Q3 quarter; 2) The Take Rate remained stable year over year, mainly because ① the platform began charging 1,600 basic software service fees based on confirmed GMV, which raised the level of the industry, but also provided suitable rebate discounts for small and medium-sized merchants; ② AI-driven full-platform marketing tools The penetration rate of “full-site promotion” merchants has increased steadily, and merchants have achieved efficiency improvements through the use of full-site promotion and marketing, which is expected to increase platform investment; ③ According to the company's 2024Q3 performance conference, the company believes that the current emerging model with a low monetization rate within the Taotian Group initially grew rapidly and the commercialization rate was still low, partly due to the increase in the diluted take rate. We believe that the platform values the health of merchants, actively balances merchant revenue and platform monetization, and is expected to usher in higher quality and sustainable growth.

The international business focuses on improving the operating efficiency of various businesses, and actively invests in key markets. In 2024Q3, Alibaba Digital Business Group achieved a 29% year-on-year increase in revenue to 31.7 billion yuan, mainly driven by strong growth in cross-border business (in particular, the sharp year-on-year increase in orders in AliExpress Choice business); the 2024Q3 section adjusted EBITA -2.9 billion yuan, and adjusted eBitaMargin to -9%. The main reason for the year-on-year increase in losses was that AliExpress and Trendyol increased specific investment in markets such as Europe and the Gulf region this quarter, according to the company The 2024Q3 results conference was partially offset by a sharp narrowing in operating losses due to increased Lazada's monetization rate and operational efficiency, and AE Choice's UE continues to be optimized. The platform has also launched an overseas hosting model, hoping to fully mobilize the local inventory of merchants in overseas markets and further enhance the variety and delivery experience.

Adhere to the strategic layout of integrating cloud and AI, AI continues to increase its contribution. 2024Q3 Cloud Intelligence Group's revenue achieved a year-on-year increase of 7% to 29.6 billion yuan, public cloud revenue achieved double-digit year-on-year growth, and AI-related revenue achieved three-digit year-on-year growth for five consecutive quarters; the adjusted EBITA for the cloud business increased 89% year over year to 2.7 billion yuan, and the adjusted EBITA profit margin increased 4 percentage points to 9% year over year, according to the company's 2024Q3 performance conference, mainly due to the platform shifting the product structure to the public, including AI-related products with higher profit margins Cloud products, and improvements in operational efficiency, were partially offset by increased investment in customer growth and technology.

Continue to enhance shareholder returns. As of the quarter ended September 30, 2024, Alibaba repurchased 0.414 billion common shares (equivalent to 52 million American Depositary Shares) for a total of 4.1 billion US dollars; as of September 30, 2024, Alibaba still had a repurchase amount of 22 billion US dollars under the share repurchase plan authorized by the board of directors, which is valid until March 2027.

Profit forecast and investment rating: Considering the steady progress of the commercialization strategy of domestic e-commerce business and the continued loss reduction of other non-core businesses, we adjusted the profit forecast. We expect the company's FY2025-2027 fiscal year revenue to be 1005.9/1110.6/1222.8 billion yuan, net profit to mother of 124.3/132.3/149.8 billion yuan, respectively, and non-GAAP net profit to mother of 153.1/166.7/188.1 billion yuan respectively, corresponding to dilution EPS is 6.2/6.6/7.5, the corresponding P/E is 13x/12x/11x, and the corresponding non-GAAP P/E is 10x/9x/8x; according to the SOTP valuation method, we gave Alibaba a total target market value of 2055.6 billion yuan for fiscal year 2025, corresponding to a target price of 107 yuan/HK$115, maintaining a “buy” rating.

Risk warning: Consumption recovery falls short of expectations; e-commerce competition intensifies, industry growth falls short of expectations; organizational adjustments fall short of expected risk; new advertising products fall short of expected risk