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]