Broker: China Galaxy International Securities
Date of Report: July 4, 2025

Alibaba Group’s Bold Rmb50bn Bet: Instant Delivery Subsidies, Market Share, and Growth Outlook for 2025-2028

Introduction: Strategic Shifts in Alibaba’s Instant Delivery and Core Businesses

Alibaba Group has made headlines with its aggressive expansion into instant delivery, unveiling a massive Rmb50bn subsidy plan for the next 12 months. This strategic move comes in response to intensifying competition from rivals like JD.com and Meituan, with Alibaba racing to secure its user base and drive cross-selling synergies across its vast ecommerce ecosystem.

Alibaba’s Rmb50bn Instant Delivery Subsidy: A Game-Changing Move

• On July 2, 2025, Alibaba announced a Rmb50bn subsidy for its instant delivery operations, primarily through Taobao Flash and Eleme.
• Taobao Flash, which was upgraded from the “Xiaoshida” instant retail business, now promises one-hour delivery and was launched nationwide on May 2, 2025.
• Daily order volume for Taobao Flash plus Eleme reached 60 million as of June 23, 2025 (estimated: 24 million for Eleme, 36 million for Taobao Flash).
• Alibaba aims to:
  • Retain food delivery users amid tough competition.
  • Enhance cross-selling between instant delivery and its Taobao/Tmall ecommerce platforms.
• A HK\$12bn zero-coupon exchange bond was issued on July 3, 2025, partially funding these subsidies.
• The estimated loss per instant delivery order, after subsidy, is approximately Rmb2.
• Projected instant delivery business loss for FY3/26 is about Rmb40bn, with subsidy levels expected to gradually decrease by 4QFY3/26.

Market Share Dynamics in Instant Delivery

• Current daily order volumes:
  • Meituan: ~84 million (market leader, 51% share)
  • Alibaba: ~60 million (36% share)
  • JD: ~20 million (12% share)
• About 20% of Alibaba and JD’s instant delivery orders come from chain milk tea and coffee stores, sectors highly dependent on subsidies.
• Meituan is expected to maintain its leadership (55-60% market share) over the next 1-2 years, with Alibaba at 30-35% and JD at 10%.

Ecommerce and Cloud: Sustained Growth Despite Margin Pressures

• Taobao/Tmall (TT) CMR (Customer Management Revenue) is projected to grow by 8% year-over-year in 1QFY3/26 and 6% for the full FY3/26, driven by higher take rates and a new home appliances trade-in policy.
• During the 2025 618 online shopping festival, Alibaba is estimated to have achieved ~10% Gross Merchandise Value (GMV) growth.
• Alibaba Cloud revenue is forecast to accelerate to 20% year-over-year growth in FY3/26 (up from 11% in FY3/25), fueled by surging demand for AI inference services.
• Adjusted EBITA margin for the cloud business is expected to remain stable at 8-9% in FY3/26 (compared to 8.9% in FY3/25).
• Alibaba’s planned capex stands at Rmb380bn for FY3/26-28.
• The company holds a strong AI position as:
  • The No. 1 domestic and No. 4 global cloud provider.
  • Developer of its own open-source large language model (LLM), Qwen.

Financial Outlook and Performance Metrics

Selected Financial Summary (Rmbm unless specified):

• Expected revenue growth: 8.3% (FY3/26F) and 7.7% (1QFY3/26F).
• Non-GAAP net profit is projected to decline by 5.4% (FY3/26F) and 5.6% (1QFY3/26F) due to increased delivery subsidies.
• Dividend payout ratio remains stable (~19-24%).

Valuation: DCF Analysis and Target Price Adjustment

• Discounted Cash Flow (DCF) based Target Price (TP) has been revised to HK\$153 (from HK\$172), reflecting higher projected losses from delivery subsidies.
• WACC: 10.3%, Terminal Growth: 3%.
• Current share price: HK\$105.1, representing a 45.6% upside to the new TP.
• ADR price: US\$108.7, with a corresponding TP of US\$158.2.
• Consensus ratings: 44 Buy, 0 Hold, 0 Sell.

Key Revisions

• FY25F EPS reduced by 17.9%.
• FY26F EPS reduced by 15.6%.
• FY27F EPS reduced by 13.2%.

Segment Analysis: Revenue Breakdown

• Alibaba expects broad-based growth, especially in international commerce, cloud, and core ecommerce segments.
• Some segments, like Cainiao, temporarily show flat or smaller growth, reflecting business adjustments.

Balance Sheet and Key Ratios

• Cash and equivalents are forecast to rise from Rmb471.9bn in March 2025 to Rmb837.9bn in March 2028.
• Net gearing remains comfortably negative, indicating a strong capital position.
• Return on equity is expected to stabilize around 13.8%-13.9% through FY26-28.
• Operating EBITDA margin is estimated between 15.1% and 15.7% for FY26-28.

Shareholder and Market Data

• Market capitalization: US\$255.6bn (HK\$2,006bn).
• Current shares outstanding: 20,182 million.
• Free float: 61.3%.
• Major shareholders: SoftBank (24.9%), Jack Yun Ma (4.8%).
• 1M/3M/12M Price Performance: -8.3% / -14.9% / +43.7% (absolute); -9.4% / -19.6% / +11.0% (relative).

Risks and Catalysts

• Key Re-Rating Catalysts:
  • Improved monetization rates for Taobao/Tmall and faster cloud revenue growth in FY3/26.
• Downside Risks:
  • Loss of traffic due to heightened competition.
  • Large future capital expenditures potentially impacting margins.

Recommendation and Outlook

• Stock Rating: ADD (unchanged), reflecting a positive total return expectation of 15% or higher over the next 12 months.
• Target Price: HK\$153, based on DCF analysis.
• Despite near-term EPS cuts due to subsidies, Alibaba’s robust competitive positioning, scale, and innovation in cloud and AI support long-term growth prospects.
• Investors are advised to monitor the evolving competitive landscape, especially in instant delivery and AI/cloud markets, for signs of margin stabilization and improved profitability.

Conclusion

Alibaba Group’s bold Rmb50bn investment in instant delivery is a high-stakes response to competitive pressures and evolving consumer preferences. While the near-term financial impact is notable, the company’s strategic focus on ecommerce, cloud, and AI innovation may drive sustained growth and market leadership. With a revised target price and a continued ADD rating, Alibaba remains a stock to watch for investors seeking exposure to China’s dynamic digital economy.

Contact Analysts

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