The company released FY2Q25 results: FY2Q2025, and the company achieved operating income of 236.5 billion yuan (+5.2%), slightly lower than Bloomberg's agreed forecast of 239.4 billion yuan; adjusted net profit of 36.5 billion yuan (-9.1%), slightly higher than Bloomberg's agreed expectation of 35.6 billion yuan, and overall performance continued the steady trend.

We believe: Ali continues to optimize the business environment, and the merchant side loosens only refunds+online returns to effectively reduce the merchant's operating costs; the user side increases investment, enhances the user experience, and places more emphasis on user+ services. The share of the main business, Taotian, gradually stabilized, and the commercialization process progressed steadily. The margins of the side business continued to reduce losses, the overall profitability of the company continued to be optimized, and the scale of repurchases was rich for shareholders. More specifically:

Taotian Group: Users are returning to growth and focusing on improving monetization capabilities. FY2Q2025, Taotian Group achieved revenue of 99 billion yuan (yoy +1.4%) and adjusted EBITA of 44.6 billion yuan (yoy -5.3%, profit margin 45.0%, -3.2pct), which is the impact of increased investment in short-term user experience. 1) GMV and orders: Order volume maintained a double-digit growth rate, but the decline in AOV partially offset GMV growth. 2) CMR: Q3 achieved CMR revenue of 70.4 billion yuan (yoy +2.5%), and TR stopped falling and stabilized. In September, Taotian Leisure added 0.6% of the software service fee and increased the overall promotion penetration rate. There is still room for future TR improvements. 3) Users: According to Quest Mobile data, the number of newly installed users increased 55% year-on-year after connecting with Tencent in September, and MAU reached a record of 0.944 billion. The number of high-value 88VIP users exceeded 46 million, an increase of nearly 50% over the previous year. Furthermore, during the Double Eleven period, the company revealed that the number of buyers reached a new high. The traffic dividend of connectivity was compounded by the optimization of the business environment, and both buyers and sellers showed significant growth. 4) Organizational structure: According to 36 krypton, on November 21, Alibaba announced the integration of domestic and overseas e-commerce and the establishment of an e-commerce business group with Jiang Fan as CEO to further promote collaboration between domestic e-commerce and cross-border e-commerce to improve operational efficiency.

5) Outlook: We believe that FY25's GMV is expected to grow steadily throughout the year. We are optimistic that Taotian's share will gradually stabilize. Follow-up attention will be paid to the overall promotion and increase in monetization capacity brought about by 0.6% software service fees.

Cloud Intelligence Group: Profitability continues to increase, and AI-related revenue is growing rapidly. FY2Q2025, Cloud Intelligence Group achieved revenue of 29.6 billion yuan (yoy +7%) and adjusted EBITA of 2.7 billion yuan (yoy +89%, profit margin 9.0%, +3.9 pct). Public cloud revenue achieved double-digit year-over-year growth, and AI-related revenue achieved three-digit year-over-year growth for five consecutive quarters. The company's AI giant model, Tongyi Qianwen released the 2.5 series. Multiple benchmark performance was strong ahead of rivals. At the same time, API call rates were further reduced to improve cost performance and achieve AI inclusiveness. It is expected that the company's cloud business will maintain a high growth rate.

International Commerce: Continuing the trend of high growth. FY2Q2025, Alibaba Digital Commerce achieved revenue of 31.7 billion yuan (yoy +29%), and the cross-border business continued to grow strongly. The adjusted EBITA -2.9 billion yuan (profit margin -9.2%) was due to increased investment in AliExpress and Trendyol's cross-border business, partially offset by Lazada's profitability optimization. 1) The international retail business achieved revenue of 25.6 billion yuan (yoy +35%). By platform: 1. AliExpress: Choice continued to achieve strong order growth, and UE was clearly optimized month-on-month. 2. Trendyol: AliExpress and Trendyol continue to invest 100 million dollars in specific markets in Europe and the Gulf region to occupy the minds of consumers. 3. Lazada: Continuous optimization of monetization efficiency and operational efficiency. 2) The international wholesale business achieved revenue of 6.1 billion yuan (+9%), mainly due to the increase in revenue from value-added services related to cross-border business.

Cainiao: Cross-border logistics fulfillment services drive revenue growth. FY2Q2025 Cainiao achieved revenue of 24.6 billion yuan (yoy +8%) and adjusted EBITA of 0.06 billion yuan. Cainiao will continue to develop a highly digital global logistics network to enhance synergy with cross-border e-commerce businesses. Since October, Cainiao has cooperated with other platforms such as JD to provide services to further enhance user coverage.

Local life: Improved operational efficiency and increased business scale have led to a sharp narrowing of losses. FY2Q2025 Local Life achieved revenue of 17.7 billion yuan (yoy +14%), adjusted EBITA -0.4 billion yuan. Mainly driven by Hungry and Gaode's order growth and marketing services, Gaode's DAU reached a new high of over 0.28 billion during the 11th National Day.

Big Entertainment: FY2Q2025 achieved revenue of 5.7 billion yuan (yoy -1%) and adjusted EBITA of -0.2 billion yuan. The increase in advertising revenue and the improvement in content investment efficiency have driven Youku to reduce losses.

Repurchase: FY2Q25 repurchased $4.1 billion of common shares totaling 0.414 billion, a net reduction of 2.1% of total share capital. The current share repurchase plan balance is still $22 billion, which is valid until March 2027.

We forecast the company's FY2025-2027 revenue of 10036/1091.6/1183.1 billion yuan (the original FY2025-2027 forecast was 10165/1093.3/1188.2 billion yuan) and adjusted net profit of 151.2/171.5/191.9 billion yuan (the original FY2025-2027 forecast was 152.7/173.1/196.6 billion yuan). According to the segmental valuation, the company's market value was $2073.8 billion, corresponding to a value of HK$117.52 per share (RMB to HKD exchange rate of 1.080), maintaining a “buy” rating.

Risk Warning: Increased industry competition, stricter industry regulations, and poor macroeconomic conditions