Currently, the Chinese e-commerce market is facing a lot of uncertainty and a fierce competitive environment. In this quarter, Alibaba focused on improving the user experience, obtaining user growth and retention through product price and customer service, and introducing concessions and marketing tools to improve efficiency for merchants. Despite short-term uncertainty, the long term will help strengthen the company's market share and level of monetization. At the same time, Alibaba Cloud, as a leading domestic cloud vendor, will lead AI-related demand. In addition, the company paid more attention to reducing losses in loss-making businesses and continuously increasing the company's value through active repurchases. The number of tradable shares has been reduced by 4.4% this fiscal year.

FY2025Q2 Results Summary: For the fiscal quarter of September 30, 2024, revenue was RMB 236.503 billion, up 5% year over year. Operating profit was 35.246 billion yuan, up 5% year on year, equity incentive expenses decreased 39% year on year to 4.146 billion yuan, and adjusted EBITA fell 5% year on year to 40.561 billion yuan. Net profit was 43.547 billion yuan, up 63% year on year, mainly reflecting changes in equity investment held by the company. Adjusted net profit decreased 9% year over year to 36.518 billion yuan. Operating cash flow decreased 36% year over year, and free cash flow decreased 70% year over year, mainly due to increased investment in Alibaba Cloud, annual service fee rebates from Tmall merchants, and reduction in the scale of direct business. The company repurchased a total of 4.1 billion US dollars this quarter, with a net decrease of 2.1% of tradable shares over the previous quarter. Currently, the share repurchase plan still has a limit of 22 billion US dollars.

Segmented business performance: Taotian Group's revenue increased 1% year-on-year to 98.994 billion yuan in the quarter, including customer management revenue increased 2% year-on-year to 70.364 billion yuan, and the EBITA profit margin was 45%, an improvement of 2 percentage points over the previous quarter. The increase in GMV was mainly due to an increase in the frequency of purchases and a year-on-year double-digit increase in order volume, but the average order price declined. The growth rate of social retail data picked up in October, and the superimposed home appliance categories benefited from government subsidies, which had a driving effect on GMV growth; in September, the company began charging basic software service fees of 6/1000, which helped CMR and monetization rates.

Overseas e-commerce revenue increased 29% year over year to 31.672 billion yuan, EBITA profit margin was -9%, and losses narrowed 4 percentage points from month to month. Cainiao Group's revenue increased 8% year over year to 24.647 billion yuan, mainly driven by cross-border logistics fulfillment services. Local Life Group's revenue increased 14% year over year to 17.725 billion yuan, with orders from Gaode and Hungry continuing to grow. Cloud Intelligence Group's revenue increased 7% year over year to 29.61 billion yuan. Among them, public cloud business achieved double-digit growth, AI revenue achieved three-digit growth; EBITA profit margin was 9%. Alibaba Cloud is in a leading position in China. Currently, AI demand prospects are good, and it is expected to maintain objective growth and profit levels in the future.

Target price of $112.00/HK$109.00, purchase rating: FY is expected to have operating income of $1003.4/1091.4/1205.5 billion, operating profit of $147.8/153.9/173.7 billion, and diluted earnings per share of $6.9/7.2/8.2. Using the segmented valuation method, a target price of $112.00/HK$109.00 was obtained, and the purchase rating was obtained.

Risks: 1) The e-commerce industry continues to expand and competition intensifies; 2) Overseas macroeconomic and policy headwinds affect the momentum of international e-commerce business; 3) The cloud business faces competitive pressure from state-owned clouds at home, and the competitive advantage overseas is less than that of players such as Amazon, Microsoft, and Google.