The company disclosed the FY25Q2 quarterly report. FY25Q2 Ali achieved revenue of 236.5 billion yuan, lower than Bloomberg's agreed forecast of 1.2%. Adjusted EBITA was $40.6 billion, lower than Bloomberg's agreed forecast of 1.3%. The adjusted net profit was 36.4 billion yuan, which is basically in line with Bloomberg's agreed expectations. In terms of share repurchases, as of FY25Q2, the company had repurchased 0.414 billion common shares for a total amount of 4.1 billion US dollars.

As of September 30, 2024, the total number of shares outstanding in the company was 18.62 billion common shares, a net decrease of 0.405 billion common shares compared to June 30, 2024. As of September 30, 2024, the remaining amount was $22 billion according to the share repurchase plan authorized by the Board of Directors (valid until March 2027).

By business: Taobao Tmall Group's revenue was 99 billion yuan, lower than Bloomberg's agreed forecast of 0.1%, of which retail revenue was 93 billion yuan, including customer management revenue of 70.4 billion yuan and direct sales revenue of 22.6 billion yuan; adjusted EBITA reached 44.6 billion yuan, lower than Bloomberg's agreed forecast of 2.9%. Profits from Cloud Intelligence Group and Local Life continued to be released, and EBITA was significantly better than expected. Local living income of 17.7 billion yuan, surpassed Bloomberg's agreed forecast of 1.6%, and adjusted EBITA of -0.4 billion yuan, better than Bloomberg's agreed estimate of 57.4%. Cloud Intelligence Group's revenue of 29.6 billion yuan is basically in line with Bloomberg's agreed expectations. After an adjusted EBITA of 2.7 billion yuan, it surpassed Bloomberg's agreed forecast of 21.3%.

Taobao Tmall Group: FY25Q2 revenue of 99 billion yuan, adjusted EBITA of 44.6 billion yuan. 1) The company increased investment in strategic initiatives, including competitively priced products, customer service, membership program benefits, and technological innovation, which led to higher purchasing frequency and improved shopping experience. 2) Starting September 1, the company will implement software service fees for GMV that has completed transactions on the platform, abolish annual fees for Tmall merchants, and provide software service fee rebates to some small and medium-sized merchants. Merchants improve marketing efficiency by using the full-site marketing tool “full site promotion”, and the company expects merchants to increase their marketing investment on the platform. 3) Taobao and Tmall's GMV achieved strong growth during the Double Eleven Shopping Festival and set a new record for the number of buyers. 4) The number of 88VIP members continued to achieve double-digit year-over-year growth, reaching 46 million this quarter. High-end consumers are buying more often and driving GMV growth.

Cloud business: FY25Q2 revenue of 29.6 billion yuan, adjusted EBITA of 2.7 billion yuan. Overall revenue for the quarter (excluding Alibaba's consolidated subsidiary) increased by more than 7% year-on-year, mainly driven by double-digit growth in public clouds, including increasing adoption of AI-related products.

For the fifth consecutive quarter, revenue from AI-related products achieved three-digit year-over-year growth. Cloud Intelligence Group unveiled a number of new technologies at the 2024 Yunqi Conference, including: 1) Releasing the open source Qwen 2.5 series. Among them, the flagship model Qwen 2.5-72B performed well in multiple benchmarks, surpassing other participants in the industry. 2) Reduce the fee for API calls and greatly improve the cost efficiency of the Generic Thousand Questions Model. 3) Strengthen the scalability and performance of AI infrastructure. Launched GPU container services, upgraded AI servers, and high-performance network products.

AIDC: FY25Q2 revenue of $31.7 billion, adjusted EBITA -$-2.9 billion. The increase in performance was mainly due to the expansion of cross-border business, particularly AliExpress's “Choice” business. AliExpress and Trendyol platforms continue to invest more in selected markets in Europe and the Gulf region to increase brand awareness. The company optimized the efficiency of operations and investments, so that the unit economic efficiency of the “Choice” business improved on a month-on-month basis. AliExpress launched the “AliExpress Direct” model, which uses local inventory to expand product selection and optimize contract fulfillment efficiency.

Other business: Cainiao's revenue was 24.6 billion yuan, and the adjusted EBITA was 55 million yuan, mainly driven by revenue growth from cross-border logistics fulfillment solutions. Local living income of 17.7 billion yuan, adjusted EBITA-0.4 billion yuan, is mainly driven by the increase in orders from Gaode and Hungry, and the increase in marketing service revenue. DME revenue of $5.7 billion, adjusted EBITA-$-0.18 billion.

Investment advice: Consider competition or intensification in the domestic e-commerce industry and the company's continued investment to promote international e-commerce business. We expect Alibaba's revenue for FY 2025-2027 to be 990.6/1080.3/1165.4 billion yuan (previous value: 1011/1109.7/1212.2 billion yuan); considering that the company will focus on improving operational and investment efficiency, the profitability of other businesses such as AIDC and local life is expected to gradually increase. We expect FY's net profit attributable to shareholders (non-GAAP) for 2025-2027 to be 157.1/176.3/189.5 billion yuan (previous value 147.1/182.5/201.6 billion yuan), maintaining the “buy” rating.

Risk warning: macroeconomic downturn, repeated epidemics, weak consumption; policy and regulatory risks; increased competition in the e-commerce industry; new business development falls short of expectations