Broker: China Galaxy International Securities (Hong Kong) Co., Limited
Date of Report: September 1, 2025
Alibaba Group Delivers Positive Guidance Amid Quick Commerce Expansion and Cloud Acceleration

Alibaba’s Fiscal 1Q26: Resilient Revenue Growth, Quick Commerce in Focus

Alibaba Group reported 2% year-over-year revenue growth for 1QFY3/26, reaching Rmb247.6 billion. Adjusting for the disposal of Intime and Sun Art, revenue growth would have hit 10% YoY, underscoring the strength across its core businesses. However, non-GAAP net profit declined by 18% YoY to Rmb33.5 billion, primarily due to substantial increases in food delivery subsidies. The firm’s quick commerce segment continues to ramp up scale, though it incurred a Rmb11 billion loss in 1QFY3/26, with losses anticipated to double in 2QFY3/26.
Management reiterated positive guidance on several fronts:
Customer management revenue (CMR) is projected to grow 10% in the next two quarters, driven by instant delivery traffic bolstering Tmall/Taobao advertising.
The unit economy (UE) loss of the food delivery business is expected to halve in September/October compared to August, aided by operational efficiencies and scale expansion.
Alibaba’s cloud segment showed robust 26% YoY growth and is forecast to accelerate further, with a 28% YoY increase expected for 2QFY3/26.

Quick Commerce: Rapid Growth, Heavy Investments, and Strategic Ambitions

Alibaba’s quick commerce business, Taobao Flash Sale (淘宝闪购), launched on April 30, 2025, has outperformed initial expectations:
Taobao daily active users surged by 20% YoY.
Average daily order volume reached 80 million in August 2025, with peaks up to 120 million orders per day.
Monthly merchant count grew to 300 million, a 200% increase from pre-launch levels.
Daily active riders reached 2 million, up 300% from pre-launch.
Despite these milestones, the quick commerce segment remains loss-making, with a reported Rmb11 billion net loss in 1QFY3/26 and expected doubling in 2QFY3/26. Management targets to narrow per-order losses by half in the coming months, leveraging improved logistics, enhanced subsidy efficiency, and better user/order structure. Alibaba’s current UE loss per order stands at Rmb5-6, significantly higher than Meituan’s Rmb1.5-2 per order.
Long-term ambitions are substantial: Alibaba expects its quick commerce business to deliver Rmb1 trillion in gross merchandise value (GMV) by FY3/28, aiming for Rmb1 per order operating profit for food delivery.

Cloud Segment: Outperforming Expectations, Market Share Focus

Alibaba’s cloud business delivered Rmb33.4 billion in revenue in 1QFY3/26, up 26% YoY and slightly above market expectations. Adjusted EBITA for the segment also rose 26% to Rmb3.0 billion. Management emphasized a strategy to prioritize market share expansion over near-term profitability and maintains capex guidance of Rmb380 billion over the next three years, with investments spanning cooperation with multiple chip providers.

Customer Management Revenue (CMR) and China Commerce: Strong Take Rates, Growing Traffic

CMR climbed 10% YoY to Rmb89.3 billion in 1QFY3/26, reflecting a higher take rate from merchants. The China Commerce segment’s adjusted EBITA fell 21% to Rmb38.4 billion due to elevated subsidies in quick commerce and food delivery.
A key driver is the “Full-site Promotion” initiative, launched in April 2024, which reached a 30% penetration rate by April 2025 and continued to grow, albeit at a slower pace. Management expects rising platform traffic, aided by instant delivery, to support 2-3% CMR growth, targeting a robust 10% YoY CMR increase for 2Q-3QFY3/26.

International Commerce: Retail and Wholesale Expansion

International commerce reported 19% YoY growth in 1QFY3/26, with retail up 20% and wholesale up 13%. The segment continues to be an engine for Alibaba’s global footprint, contributing to revenue diversification.

Financial Summary and Key Metrics

Alibaba’s fiscal metrics reveal a mix of growth, efficiency, and investment cycle dynamics:

DCF Valuation and Shareholder Overview

Alibaba’s valuation was revised slightly downward:
DCF-based target price: HK$152 (WACC: 10.4%, Terminal Growth: 3%)
Previous target price: HK$153
Current price: HK$115.7
Upside potential: 31.4%
Major shareholders include SoftBank (24.9%) and Jack Yun Ma (4.8%).

Cash Flow, Balance Sheet, and Key Ratios

Alibaba maintains a robust financial position with strong liquidity, manageable leverage, and healthy operating metrics. Key highlights:
Total cash and equivalents expected to grow from Rmb609.3 billion (Mar-24A) to Rmb855.7 billion (Mar-28F).
Net gearing projected to improve from (22.1%) in Mar-25A to (41.9%) in Mar-28F.
Operating EBITDA margin to recover from 14.9% in Mar-26F to 18.6% in Mar-28F.
Accounts payables days to decrease steadily, indicating improved working capital management.

Risks and Catalysts: What Investors Need to Watch

Alibaba’s outlook offers re-rating potential if the company successfully boosts ecommerce revenue via cross-selling from quick commerce and executes on AI/cloud initiatives. Key catalysts include:
Improved CMR and cloud revenue growth.
Continued quick commerce scale and efficiency gains.
Key downside risks remain:
Increased competition diluting platform traffic.
Greater subsidies for quick commerce impacting margins.
Large future capex potentially pressuring profitability.

Consensus Ratings and Shareholder Insights

Alibaba retains an “Add” rating with consensus overwhelmingly positive:
44 Buy, 0 Hold, 0 Sell ratings.
Free float stands at 61.3%.
Major shareholders: SoftBank (24.9%), Jack Yun Ma (4.8%).

Conclusion: Alibaba’s Strategic Pivot Powers Growth Despite Margin Pressures

Alibaba Group is executing a bold strategy, investing heavily in quick commerce and cloud to drive next-generation growth. Despite short-term margin pressures from subsidies and capex, the company’s ability to scale new businesses, leverage its user base, and expand internationally underpins its long-term value proposition. With positive guidance and strong operating metrics, Alibaba remains a top pick among Hong Kong-listed internet services stocks.

Recommendation Framework

Add: Total return expected to reach 15%+ over the next 12 months.
Hold: Total return between -10% and +15% over 12 months.
Reduce: Total return expected to fall below -10% over 12 months.

Jurisdictional and Legal Notices

The report includes detailed restrictions and disclosures for all major global markets, emphasizing compliance and transparency across jurisdictions. Investors are advised to consider their own objectives and consult professionals prior to any investment decisions.
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