Core Viewpoint - Alibaba Group is showing signs of stabilization and potential turnaround after facing significant challenges over the past four years, including regulatory issues, competition, and sluggish consumer demand [2][3][12]. Group 1: Challenges Faced - Alibaba's decline was due to a combination of factors, including regulatory shocks, domestic economic slowdown, competitive encroachment, and geopolitical risks [5][7]. - The company faced a record $2.8 billion antitrust fine and a halted IPO for Ant Group, which fundamentally changed its operational landscape [7]. - Weak consumer confidence and high youth unemployment in China negatively impacted retail spending, crucial for Alibaba's e-commerce business [7]. - Competitors like Pinduoduo and Douyin have eroded Alibaba's market share through aggressive pricing and innovative formats [7]. - U.S.-China tensions have raised concerns about potential delisting and export restrictions affecting Alibaba's AI and cloud ambitions [7]. Group 2: Signs of Recovery - Alibaba's Q1 2026 results indicate a stabilization in revenue, with a 2% year-over-year increase, and actual growth closer to 10% after adjusting for business disposals [8]. - The e-commerce segment saw a 10% revenue increase, driven by customer management revenue and initiatives like Taobao Instant Delivery [9]. - The cloud computing segment experienced a significant 26% year-over-year revenue surge, fueled by demand for AI infrastructure and services [10]. - AI product revenue has shown triple-digit growth for eight consecutive quarters, marking the cloud as a legitimate growth engine [10]. - The company is restructuring its operations to improve focus and efficiency, consolidating various divisions and reducing reporting segments [11]. Group 3: Future Considerations - Despite signs of progress, challenges remain, including profitability issues in quick commerce and ongoing price wars in food and grocery delivery [13]. - Domestic consumption is still soft, which may limit the recovery speed of the retail business [13]. - Geopolitical risks, particularly U.S. chip restrictions, could hinder Alibaba's AI development [13]. - Competition from Pinduoduo and Douyin continues to pose a threat, necessitating ongoing innovation from Alibaba [14]. - Long-term investors should monitor Alibaba's performance in e-commerce and cloud growth sustainability to gauge future investment potential [16].

Investment Rating - The report maintains a Buy rating for Alibaba Group with a target price of USD 150.00, down from USD 176.00, indicating a potential upside of 38.9% from the current share price of USD 107.99 [2][11][15]. Core Insights - The report highlights aggressive investments in food delivery (FD) and insta-shopping (Insta), which are expected to dampen near-term earnings outlook but are crucial for market share growth [11][19]. - Cloud revenue is projected to grow robustly, exceeding 20% year-on-year in FY26, driven by strong demand for AI services [2][4]. - The report emphasizes the importance of improving daily active users (DAU) and engagement with younger consumers to enhance market share and revenue [3][19]. Financial Performance and Estimates - Revenue estimates for FY26-28 have been increased by approximately 3-8%, while earnings estimates have been cut by 7-22% due to anticipated peak investments in the September quarter [2][52]. - For the June quarter, sales are expected to grow 4% year-on-year, with customer management revenue (CMR) and cloud revenue increasing by 11% and 23%, respectively [5][50]. - Adjusted EBITA is estimated to decline by 15% year-on-year to RMB 38.3 billion, reflecting a margin decrease of 3.4 percentage points [5][50]. Market Position and Competitive Landscape - Alibaba has gained significant market share in local services, with food delivery and insta-shopping market share increasing from over 20% in 2024 to 36% by July 2025 [3][21]. - The report notes that competition in the food delivery and insta-shopping sectors has intensified, with major players increasing subsidies to boost order volumes [19][21]. - The integration of Eleme and Fliggy into Taobao Tmall is part of Alibaba's strategy to consolidate leadership and enhance market share [3][19]. Cloud Computing and AI - Alibaba leads the GenAI IaaS service market with a 23.5% market share in the second half of 2024, with expectations of a 60%+ CAGR in the GenAI IaaS market from 2024 to 2027 [4][33]. - The report anticipates that Alibaba will leverage its scale in AI infrastructure and strong product capabilities to capitalize on the growing demand for AI services [4][28]. Valuation and Financial Ratios - The report provides a sum-of-the-parts (SOTP) valuation indicating that the domestic e-commerce, cloud, and cash components alone are worth USD 113.00 per share [2][39]. - Key financial ratios for FY26 include a PE ratio of 13.3x and an EV/EBITDA ratio of 8.8x, reflecting the company's valuation metrics [8][14].

Group 1: E-commerce Performance - Alibaba's e-commerce business remains its strongest asset, with Taobao and Tmall driving a 12% year-over-year growth in customer management revenues in Q4 of fiscal 2025, aided by improved take rates [1] - In the fiscal fourth quarter, Taobao and Tmall Group generated RMB 93.2 billion ($12.9 billion) in revenues, a 4% increase year-over-year, accounting for 47% of total company revenues [4] - International commerce, including AliExpress and Lazada, saw revenues of RMB 27.4 billion ($3.8 billion), up 45% year-over-year, with AliExpress alone growing by 22% [4] Group 2: Strategic Initiatives - Alibaba is integrating its food delivery platform Ele.me and travel services platform Fliggy with its core e-commerce business to enhance resource alignment and delivery network strength [3] - The company is focusing on improving consumption quality through better monetization tools and AI-driven search and recommendations, aiming for growth in both China and globally [2] Group 3: Competitive Landscape - Alibaba faces increasing competition from domestic rivals JD.com and PDD Holdings, both of which are expanding rapidly in China's digital retail market [5] - JD.com reported a 16.3% year-over-year growth in retail revenues in Q1 2025, driven by strong category execution and ecosystem integration [6] - PDD Holdings experienced a 15% year-over-year increase in online marketing services revenues in Q1 2025, supported by enhanced tools for merchant performance [7] Group 4: Stock Performance and Valuation - Alibaba's shares have increased by 34.4% year-to-date, outperforming the Zacks Internet – Commerce industry growth of 5.7% and the Zacks Retail-Wholesale sector's growth of 2.8% [8] - The forward 12-month Price/Earnings ratio for BABA stock is 10.39X, significantly lower than the industry's 24.70X, indicating a favorable valuation [15] - The Zacks Consensus Estimate for Q1 fiscal 2026 earnings is $2.48 per share, reflecting a 9.73% year-over-year growth, while the estimate for fiscal 2026 earnings is $10.47 per share, indicating a 16.2% year-over-year growth [13]

Investment Rating - The industry investment rating is Attractive [9] Core Insights - Meituan has established a strong competitive advantage in quick commerce, with expectations for Alibaba's e-commerce and local services to enhance adoption [1][6] - Meituan's Instashopping gross transaction value (GTV) is projected to reach Rmb350 billion in 2025, reflecting a 30% year-over-year growth [5] - The downsizing of Meituan's Select mini program is viewed positively, as it allows for more investment in profitable areas like Instashopping and international expansion [4] Summary by Sections Meituan - Meituan is ramping up its quick commerce business by increasing the number of Instamarts and expanding product categories, with a focus on tier 1 and 2 cities [3] - The closure of Select warehouses, which incurred losses of approximately Rmb7 billion in 2024, is expected to free up resources for more strategic investments [4] - The company has over 30,000 Instamarts and more than 5,000 merchants, achieving break-even in 2024 [5] Alibaba - Alibaba is merging Eleme and Fliggy into its e-commerce group, which is anticipated to create strong synergies across e-commerce, on-demand delivery, and travel segments [12][13] - This strategic move follows JD's entry into quick commerce and food delivery, highlighting the competitive landscape [13] Financial Projections - Meituan's core local commerce operating profit (OP) is forecasted to be Rmb53 billion for 2025, with new initiatives expected to incur losses of Rmb11 billion [7] - The total on-demand retail market in China is projected to reach Rmb2 trillion by 2030, with Meituan's total on-demand retail GMV expected to reach Rmb1 trillion by the same year [18][22]

Core Viewpoint - Alibaba Group (BABA) has shown strong stock performance with a year-to-date gain of 25.9%, significantly outperforming the Zacks Internet-Commerce industry, the Zacks Retail-Wholesale sector, and the S&P 500 [1][2] Group 1: Business Performance and Growth Catalysts - Alibaba's December quarter results revealed revenues of $38.38 billion, reflecting an 8% year-over-year increase, with customer management revenues for Taobao and Tmall Group growing by 9% year-over-year [5] - The Zacks Consensus Estimate for fiscal 2025 revenues is projected at $137.03 billion, indicating a 5.01% year-over-year growth, with earnings estimated at $8.92 per share, showing a 1.4% upward revision over the past 30 days [6] - AliExpress introduced a new self-serve option, AliExpressLocal Marketplace, which has led to a 27% year-on-year increase in orders from U.S. SME buyers during its March Expo event [7] - Fliggy, Alibaba's travel subsidiary, launched AskMe, an AI-powered travel assistant, which is expected to capture a larger market share in China's travel sector, with "Buy Now, Plan Later" bookings increasing over 20% in 2024 [9] Group 2: AI Strategy and Innovations - Alibaba's Qwen AI model family has gained significant traction, with over 90,000 derivative models developed globally, and more than 290,000 companies accessing Qwen APIs through Alibaba Cloud [10] - AI-related product revenues have experienced triple-digit growth for six consecutive quarters, prompting Alibaba to commit to its largest long-term investment in cloud and AI infrastructure in the next three years [11] - The AI-driven B2B search engine, Accio, reached one million users within five months of launch, introducing features that automate market analysis and enhance global sourcing [12] - Ant Group has reduced AI training costs by 20% through a unique approach that combines Chinese and U.S.-made semiconductors [13] Group 3: Financial Position and Shareholder Returns - Alibaba maintains a robust net cash position of $51.9 billion, allowing for strategic investments and significant shareholder returns [14] - The company has repurchased $1.3 billion in shares in the December quarter and approximately $10 billion in the first half of the fiscal year, achieving a 5% net reduction in share count over nine months [15] - Alibaba has streamlined operations by selling non-core assets for approximately $2.6 billion, focusing on higher-growth, higher-margin businesses [16] Group 4: Valuation Metrics - Alibaba is currently trading at a forward 12-month Price/Earnings ratio of 9.8X, significantly lower than the industry average of 19.17X, indicating that the stock is undervalued compared to its peers [17]