Core Viewpoint - Alibaba's 2QFY26 total revenue reached 247.8 billion yuan, a year-on-year increase of 4.8%, surpassing both consensus expectations and Huatai's forecast of 2.2% to 2.9% growth, primarily driven by better-than-expected growth in cloud business [1] Group 1: Financial Performance - Adjusted EBITA for Alibaba was 9.1 billion yuan, a year-on-year decline of 77.6%, with an adjusted EBITA margin of 3.7%, which was below the consensus expectation of 5.3% but better than Huatai's forecast of 3.2% [1] - The Chinese e-commerce group's revenue for 2QFY26 increased by 15.5% to 132.6 billion yuan, with CMR growing by 10.1%, mainly due to improved monetization rates [2] - Adjusted EBITA for the Chinese e-commerce group was 10.5 billion yuan, a year-on-year decline of 76.3%, aligning closely with Huatai's expectation of 10.8 billion yuan [2] Group 2: Business Developments - Management indicated ongoing investments in full-stack AI capabilities, with AI and Alibaba's ecosystem creating greater development space, and deepening collaboration across various business lines in the consumer sector [1] - The management noted that since October, the average loss per order in the flash purchase business has halved compared to July-August, with stable order share and improved GMV share due to increased average transaction value [2] - AI-related revenue for Alibaba Cloud grew by 34.5% year-on-year, continuing a trend of acceleration, outperforming the consensus expectation of 28% [2][3] Group 3: Future Outlook - Management expressed confidence in the growth of AI demand, with AI-related revenue accounting for over 20% of external commercial revenue, and AI-related capital expenditures for 2QFY26 were 31.5 billion yuan [3] - The company aims to become a leading full-stack AI service provider in the AI to B sector and is focused on developing AI native applications for consumers in the AI to C sector [3] - Future profit forecasts for Alibaba have been adjusted, with FY26 net profit estimate raised by 10.1% to 105.8 billion yuan, while FY27 and FY28 estimates were lowered due to high base effects in the e-commerce business [3]

Investment Rating - The report maintains a "Buy" rating for Alibaba Group [6] Core Insights - Alibaba's cloud revenue continues to accelerate, and the flash purchase business is reducing losses, indicating a positive trajectory for the company [1] - The management expresses confidence in the growth of AI demand and plans to invest further in AI and cloud services to enhance synergies [3] - The company has adjusted its profit forecasts for FY26, FY27, and FY28, reflecting better-than-expected performance in Q2 FY26 and improvements in the flash purchase business [4][17] Financial Performance - Alibaba's total revenue for Q2 FY26 was 247.8 billion yuan, a year-on-year increase of 4.8%, surpassing market expectations [1] - The adjusted EBITA for Q2 FY26 was 9.1 billion yuan, down 77.6% year-on-year, but better than the forecasted 7.7 billion yuan [1] - The cloud segment's revenue grew by 34.5% year-on-year, exceeding the expected growth rate of 28% [3] Business Segments - The Chinese e-commerce group's revenue increased by 15.5% to 132.6 billion yuan in Q2 FY26, driven by improved monetization rates [2] - The flash purchase business has shown a significant reduction in losses, with management indicating that losses per order have halved since October [2] - AI-related revenue has been growing at a triple-digit rate for nine consecutive quarters, now accounting for over 20% of external commercial revenue [3] Profit Forecasts and Valuation - The adjusted non-GAAP net profit forecasts for FY26, FY27, and FY28 are set at 105.8 billion yuan, 131.0 billion yuan, and 159.7 billion yuan, respectively [4][17] - The target price for Alibaba's stock is set at 214.9 USD for US shares and 209.0 HKD for Hong Kong shares, corresponding to PE ratios of 36.3, 29.3, and 24.1 for FY26, FY27, and FY28 [4][19]