Broker: China Galaxy International Securities (Hong Kong) Co., Limited
Date of Report: September 1, 2025
Alibaba Group Delivers Positive Guidance Amid Quick Commerce Losses: A Comprehensive Financial Analysis

Executive Summary: Alibaba’s Strategic Pivot and Key Financials

Alibaba Group, a cornerstone of the Hong Kong internet services sector, recently published its 1QFY3/26 financial results. The company demonstrated steady revenue growth, robust expansion in cloud computing, and an aggressive push into quick commerce despite significant initial losses. This detailed review explores every facet of Alibaba’s latest performance, management guidance, financial forecasts, and competitive landscape, providing crucial insights for investors and market watchers.

1. Headline Results and Market Positioning

Alibaba’s 1QFY3/26 revenue rose 2% year-on-year to Rmb247.6bn—broadly in line with expectations. Adjusted for the disposal of Intime and Sun Art, the underlying revenue growth was 10%. However, non-GAAP net profit fell 18% year-on-year, landing at Rmb33.5bn, mainly due to surging food delivery subsidies.
Management’s positive guidance signals robust expectations for:

• Continued double-digit revenue growth in upcoming quarters
• Quick commerce scale-up with expectations for improved unit economics
• Accelerating cloud revenue expansion

2. Quick Commerce: Explosive Growth, Heavy Losses, and Strategic Ambitions

Alibaba’s quick commerce business (Taobao Flash Sales), launched April 30, 2025, has exceeded expectations in scale:

• Daily active users (DAU) surged 20% year-on-year
• Average daily order volume reached 80 million in August, peaking at 120 million
• Monthly merchants rose to 300 million (up 200% since April)
• Daily active riders hit 2 million (up 300% since April)

Despite these impressive milestones, the quick commerce unit incurred a Rmb11bn net loss in 1QFY3/26, with losses expected to double in the second quarter. However, management targets halving the unit economy (UE) loss per order by September/October 2025, leveraging improved user structure, logistics, and subsidy efficiency. For context, Alibaba’s current UE loss sits at Rmb5-6 per order, compared to Meituan’s Rmb1.5-2 per order. In the long run, Alibaba aims for Rmb1 per order operating profit in food delivery and expects quick commerce gross merchandise value (GMV) to hit Rmb1 trillion by FY3/28.

3. Core Ecommerce and Customer Management Revenue (CMR) Momentum

Alibaba’s core ecommerce and CMR engines remain vital growth drivers:

• CMR grew 10% year-on-year to Rmb89.3bn, underpinned by higher merchant take rates and robust advertising revenue
• The “Full-site Promotion” product, launched April 2024, achieved a 30% penetration rate by April 2025, with further gains projected
• Despite a new 0.6% technical fee from September 2024, management maintains a 10% year-on-year CMR growth target for the next two quarters

Direct sales, logistics, and other commerce also posted growth, though at a slower 7% year-on-year pace.

4. Cloud Business: Accelerating Growth and Market Share Ambitions

Alibaba’s cloud revenue rose 26% year-on-year, reaching Rmb33.4bn in the quarter. Adjusted EBITA for the cloud segment grew in tandem, up 26% to Rmb3.0bn. Management is prioritizing market share gains over near-term profitability, reflected in substantial capital expenditure: 1QFY26 capex hit Rmb38.7bn, with a three-year capex guidance of Rmb380bn, facilitated by partnerships with various chip providers.

5. Segment EBITA Performance and Profitability Trends

Segment-level EBITA shows mixed results across Alibaba’s business lines:

6. Analyst Outlook: Target Price, EPS Revisions, and Valuation

China Galaxy International maintains an “Add” rating on Alibaba, reducing the DCF-based target price slightly to HK\$152 (from HK\$153). The reduction reflects increased subsidies for quick commerce and lower forecast non-GAAP EPS for FY26F-28F, with cuts ranging from 10% to 20%.
Key re-rating catalysts:

• Stronger CMR and cloud revenue growth, especially if cross-selling boosts ecommerce
• Successful scaling and margin improvement in quick commerce
• Solid development of AI and cloud businesses

Downside risks include:

• Traffic dilution due to competitive pressure
• Persistently high subsidies for quick commerce, eroding margins
• Large capex investments affecting profitability

7. Financial Forecasts and Key Metrics

Alibaba’s financial summary and projections highlight continued topline growth, margin pressure from quick commerce investment, and improving capital efficiency. Below is a snapshot of the key metrics for FY24A-FY28F:

8. Market Performance and Shareholder Structure

• Current Price: HK\$115.7
• Target Price: HK\$152.0 (31.4% upside)
• Market Cap: US\$283.1bn (HK\$2,206.8bn)
• Free Float: 61.3%
• Major Shareholders: SoftBank (24.9%), Jack Yun Ma (4.8%)

9. Risks and Investment Considerations

Key risks include:

• Competitive traffic dilution
• Persistently high quick commerce subsidies hurting margins
• Significant future capex requirements

10. Conclusion: Strategic Growth with Cautious Optimism

Despite near-term profit pressure from its aggressive quick commerce push, Alibaba’s management remains bullish on the platform’s long-term value, scale, and cross-selling synergies with core ecommerce and cloud. Investors should closely monitor the trajectory of quick commerce losses, cloud market share gains, and the company’s ability to convert traffic and innovation into sustainable profit growth.

Appendix: DCF Valuation and Key Ratios

Analyst Contacts

• Lei Yang: [email protected]
• Charlotte Zhou: [email protected]