Taotian's monetization rate stabilized, and the non-e-commerce business continued to improve. Maintaining the “purchase” rating. Taking into account the increase in revenue contributed by Taotian's collection of technical service fees and the continued loss of non-e-commerce business, but still maintaining investment in user experience, we slightly raised the adjusted net profit forecast for FY 2025 to 151.7 billion yuan (previous value of 151.5 billion yuan), maintaining the FY2026-2027 forecast of 170.7 billion yuan/189.1 billion yuan, corresponding to the year-on-year growth rate of -3.7%/12.5%/ 10.8%, corresponding diluted EPS is 8.1/9.4/10.6 yuan, and the current stock price corresponds to 9.8/8.5/7.5 times PE. We expect the share of domestic e-commerce to stabilize in the future, the monetization rate is expected to pick up, international e-commerce will maintain rapid growth, Alibaba Cloud's profit will improve, and maintain the “buy” rating.

FY2025Q2's performance was basically in line with expectations. Taotian's monetization rate stabilized year on year, other business improvements FY2025Q2 revenue increased 5% year over year, and non-GAAP net profit fell 9% year on year, which was basically in line with Bloomberg's agreed expectations. (1) Taotian Group: Customer management revenue YOY +2%, and the monetization rate stabilized year on year. The year-on-year growth rate of GMV coincided with the 2024Q3 year-on-year decline in social zero growth. In addition, the levy of technical service fees squeezed some low-profit merchants to a certain extent, and order volume continued to grow in double digits year over year. After adjusting EBITA YOY -5%, platform competition is still fierce, and investment in user experience and infrastructure continues. (2) International Business Group: Revenue increased 29% year on year, adjusted EBITA rate -9%, down 7.6 pct year on year, narrowed by 3.5 pct month on month, continued investment in specific regions in Europe and overseas, and Choice UE improved month-on-month. (3) Cloud Intelligence Group: Revenue increased 7% year over year, revenue from public cloud products increased by double digits year on year, and AI related products increased by 3 digits year on year for 5 consecutive quarters. The adjusted EBITA rate is 9%, YOY+3.9 pct, and QoQ+0.2 pct, due to improvements in product structure and operational efficiency.

Taotian will still invest in user experience to gain share in the short-term when the share of domestic e-commerce stabilizes and the monetization rate recovers. Profit margins may fluctuate. It is expected to attract merchant budgets as e-commerce weakens in the medium term and the iteration of advertising products. The number of 88 VIPs on the demand side will reach 46 million in 2024Q3. Low price subsidies and connectivity with Tencent will bring new volume. Increased technical service fees and increased penetration across the site are expected to drive a recovery in the overall monetization rate. 2024Q1-Q3 repurchases worth 14.7 billion US dollars of shares (about 6.9% of current market value), and the remaining repurchase amount is 22 billion US dollars (about 10.4% of current market value, valid until March 2027).

Risk warning: Increased industry competition, macroeconomics falling short of expectations, organizational adjustments falling short of expectations, regulatory changes.