Key points of investment:

Alibaba released its report for the second quarter of FY2025 and achieved revenue of 236.503 billion yuan in the second quarter of FY2025, an increase of 5% over the previous year. Operating profit was 35.246 billion yuan, up 5% year on year; adjusted EBITA was 40.561 billion yuan, down 5% year on year; non-GAAP net profit was 36.518 billion yuan, down 9% year on year.

Repurchase $4.1 billion of common stock. The company repurchased 0.414 billion common shares at a total price of $4.1 billion. As of September 30, 2024, common shares in circulation were 18.62 billion shares, a net decrease of 0.405 billion shares compared to June 30, 2024, a net decrease of 2.1%.

1. 2Q25FY revenue increased 5% year on year, adjusted EBITA decreased 5% year on year 2Q25FY revenue of 236.503 billion yuan increased 5% year on year; adjusted EBITA was 40.561 billion yuan, down 5% year on year; adjusted EBITA rate was 17%, down 2 pct year on year. Non-GAAP net profit was 36.518 billion yuan, down 9% year over year.

(1) Taotian Group: 2Q25FY Taotian Group's total revenue was 98.994 billion yuan, up 1% year on year; of these, customer management revenue was 70.364 billion yuan, up 2% year on year. Looking at the segment, China's retail revenue was 93.008 billion yuan, no change from 2Q24FY; China's wholesale business revenue was 5.986 billion yuan, an increase of 18% over the previous year. The total adjusted EBITA of Taotian Group was 44.59 billion yuan, a year-on-year decrease of 5%, and the adjusted EBITA profit margin was 45.04%.

(2) Ali International Digital Business Group: 2Q25FY revenue of 31.672 billion yuan increased 29% year over year, with international retail revenue of 25.618 billion yuan up 35% year on year; international wholesale business revenue of 6.054 billion yuan increased 9% year on year.

The International Commercial Division lost 2.905 billion yuan in adjusted EBITA, and the adjusted EBITA margin was -9.17%.

(3) Cloud Intelligence Group: 2Q25FY Alibaba Cloud Intelligence Group's total revenue was 29.61 billion yuan, up 7% year on year; adjusted EBITA 2.661 billion yuan increased 89% year over year, and adjusted EBITA profit margin was 8.99%, up 3.89pct from 2q24fy.

(4) Local Life Group: 2Q25FY Local Life Group's revenue was 17.725 billion yuan, an increase of 14% over the previous year, mainly driven by the increase in orders from Gaode and Hungry, and the increase in marketing service revenue. This quarter, Local Life Group's losses narrowed significantly year-on-year due to improved operational efficiency and increased business scale. Adjusted EBITA lost $0.391 billion. The adjusted EBITA margin was -2.21%, up 14.27pct from 2Q24FY.

(5) Cainiao: 2Q25FY Cainiao's revenue was 24.647 billion yuan, an increase of 8% over the previous year, mainly driven by revenue growth from cross-border logistics fulfillment solutions. The adjusted EBITA was 0.055 billion yuan, down 94% from 0.906 billion yuan in the same period in 2023, mainly due to increased investment in cross-border logistics fulfillment solutions. The adjusted EBITA margin was 0.22%, down 3.75pct from 2q24fy.

(6) Dawen Entertainment Group: 2Q25FY revenue was 5.694 billion yuan, a year-on-year decrease of 1%. Dawen Entertainment Group's losses narrowed year-on-year, and thanks to increased advertising revenue and improved content investment efficiency, Youku's operating losses gradually declined this quarter. Adjusted EBITA lost $0.178 billion.

(7) All others: 2Q25FY revenue of $52.178 billion, up 9% year over year; adjusted EBITA loss of 1.582 billion yuan.

As of the end of 2Q25FY, cash and cash equivalents, short-term investments and other financial investments were 554.4 billion yuan; 2Q25FY's net operating cash flow was 31.438 billion yuan, down 36% year on year; free cash flow was 13.8 billion yuan, down 70% year on year.

2. Updated profit forecast: 2025FY-2027FY's non-GAAP net profit attributable to common shareholders is estimated at $157.6, 168.4, and 177 billion, respectively, giving the company a reasonable overall market value range of HK$2.09 trillion-2.4 trillion for 2025FY and HK$110-126 per share for H shares in the reasonable value range.

Considering that since the quarter ended September 30, 2023, the company has adopted a new organizational and governance structure and updated the division report, we have given the company a segmented valuation and adjusted the valuation method according to the latest segment. The valuation method and key assumptions are as follows:

(1) For 2025FY Taotian Group 7-9xPE, 1xPS for international digital commerce, 2xPS for local life, 2xPS for cloud intelligence, 0.5xPS for Dawen Entertainment, 0.5xPS for other businesses;

(2) Cainiao is valued at 27.5 billion US dollars based on the November 2019 transaction; (3) In major equity investments, Ant Group (33% of the company's shares) is valued based on the repurchase price disclosed on July 9, 2023 representing the valuation amount (78.48 billion US dollars).

Risk warning: increased competition; macroeconomic and regulatory uncertainty; risk of cross-border expansion, etc.