Introduction

Alibaba Group, the largest e-commerce marketplace operator in China, continues to demonstrate its robust market position with a focus on high-quality growth and gradual monetization. This comprehensive analysis delves into the company’s recent financial performance, strategic initiatives, and future outlook.

Financial Performance Overview

In 2QFY25, Alibaba’s revenue grew by 5% year-on-year to RMB 236.5 billion, slightly falling short of market expectations. However, the non-GAAP net profit was RMB 36.5 billion, aligning with consensus forecasts and resulting in a net margin of 15.4%. The company’s performance during the 11.11 campaign was particularly noteworthy, underscoring strategic execution capabilities.

Segment Analysis

Taobao and Tmall Group

Taobao and Tmall Group’s (TTG) revenue saw a marginal uptick of 1% year-on-year to RMB 99 billion. Customer management revenue (CMR) rose by 2% to RMB 50.5 billion, driven by positive online gross merchandise value (GMV) growth. The number of 88VIP members grew by double digits, reaching 46 million. Despite a decline in direct sales and other revenues, the group’s strategic focus on enhancing user experience remains strong.

Alibaba Cloud

Alibaba’s cloud division, AliCloud, reported a 7% year-on-year growth in revenue, supported by double-digit growth in public cloud services and significant contributions from AI-related products. The EBITA margin expanded from 5% in 2QFY24 to 9% in 1QFY25, reflecting robust demand for AI products and a promising outlook for future revenue growth.

International Digital Commerce

The Alibaba International Digital Commerce Group (AIDC) posted a 29% year-on-year increase in revenue, driven by growth in international retail and wholesale revenues. Adjusted EBITA loss margin improved due to reduced losses from Lazada, despite investments in AliExpress and Trendyol’s expansion in Europe and the Gulf region.

Local Services and Other Segments

Local Services Group’s revenue ascended by 14% year-on-year to RMB 17.7 billion, with adjusted EBITA losses narrowing significantly due to Ele.me’s enhanced operational efficiency. Other segments, including Freshippo and Alibaba Health, contributed to a 9% growth in revenue.

Strategic Initiatives and Monetization Efforts

Alibaba’s strategic initiatives during the 11.11 campaign focused on improving user experience, resulting in 589 brands surpassing RMB 100 million in sales. The introduction of a 0.6% software service fee and the Quanzhantui marketing tool contributed to enhanced monetization capabilities. The company also repurchased 414 million ordinary shares, demonstrating a commitment to shareholder returns.

Future Outlook and Risks

While maintaining a ‘BUY’ recommendation with a target price of HK\$130.00, UOB Kay Hian acknowledges potential risks, including slowing GMV growth, investment demands, and merchant acquisition competition. The company’s strategic focus on cloud and commerce growth initiatives is expected to drive favorable outcomes in the coming fiscal years.