Alibaba announced quarterly results for September 2024. Alibaba's revenue for the 2025Q2 fiscal quarter (the natural quarter ending September) was 236.5 billion yuan, up 5% year over year. Among them, revenue from Taotian, International Business, Local Life, Cainiao, Cloud Intelligence, and Big Entertainment was 990/317/177/24.6/29.6/5.7 billion yuan, respectively, with year-on-year growth rates of 1%/29%/14%/8%/7%/-1.5%, respectively.

The company's adjusted EBITA for the quarter was about 40.6 billion yuan, down 5% year on year, and the EBITA profit margin was about 17%.

Among them, the adjusted EBITA profit margin for Taotian, International Business, Local Life, Cainiao, Cloud Intelligence, and Dawen Entertainment for this season was 45%/-9%/-2%/0%/9%/-3%. The company's non-GAAP net profit for the quarter was 36.4 billion yuan, down 9% year over year.

Taotian: The acceleration of monetization needs to be promoted, and Taotian is still in the investment period. The company's customer management revenue (CMR) increased 2% year-on-year this quarter, mainly due to the growth of e-commerce GMV. From a monetization rate perspective, the previous penetration of “sitewide promotion” tools and the collection of 0.6% technical service fees starting in September had a positive effect on the monetization rate; this was partly offset by the low monetization rate of some new models.

Taotian's adjusted EBITA profit margin this season was about 45%, a significant decline from 48% in the same period last year, mainly due to increased investment in user experience. Taotian Group's strategy of putting user experience first has begun to bear fruit, and Taotian GMV orders showed double-digit growth this quarter. Judging from user data, by the end of this quarter, the number of 88VIP members had reached 46 million. We expect Taotian's user investment will continue in the short term in the future.

Cloud intelligence: AI drives growth and profit margins continue to improve. Alibaba Cloud's business revenue for the quarter was RMB 29.6 billion, up 7% year on year, and the growth rate continued to increase. Among them, public cloud revenue grew by double digits year on year, and revenue from AI-related products achieved three-digit growth for five consecutive quarters. Alibaba Cloud's adjusted EBITA rate increased to 9.0% this quarter, and both operational efficiency and product structure were improved. The company is optimistic about future AI needs, especially on the reasoning side, and will continue to invest in AI-related products. We expect future AI to continue to drive considerable growth in the cloud business.

Reiterate the buy rating. We expect Ali's revenue for the 2025-2027 fiscal year to be 1010.9/1113.4/1214.4 billion yuan; non-GAAP net profit to mother 160/183/206.2 billion yuan. Based on core e-commerce 10x 2025eP/e, cloud computing 3x 2025e P/S, big entertainment and other businesses 2x 2025e P/S, we believe Alibaba's reasonable target price is HK$114 for Hong Kong stocks (9988.HK) /HK$116 (BABA.N), maintaining a “buy” rating.

Risk warning: The impact of industry policies on business exceeded expectations, progress in e-commerce and cloud computing fell short of expectations, and changes in the macro environment exceeded expectations.