20260320-招银国际-Recovery_of_consumption_business_in_sight_with_determined_long-term_goal_for_cloud_8页_806kb

Alibaba (BABA US) Summary

Core Content

Alibaba Group's 3QFY26 results show a mixed performance across its business segments, with a notable recovery in the consumption business and strong growth in the cloud segment. The company's revenue for the quarter was RMB284.8bn, up 1.7% YoY, slightly below the Bloomberg consensus. Adjusted EBITA declined by 57% YoY to RMB23.4bn, attributed to continued investments in quick commerce (QC), user experience, and technology. However, the cloud business saw a significant acceleration in YoY revenue growth, reaching 36% in 3QFY26, surpassing the previous quarter's growth and the Bloomberg consensus.

Key Business Segment Updates

Alibaba China E-commerce Group (ACEG) - 51.5% of 3QFY26 revenue

• Revenue: RMB159.3bn, up 5.8% YoY
• Sub-segment growth: E-commerce (+0.8%), QC (+56.0%), China Commerce (+5.3%)
• CMR growth: 1% YoY, but expected to accelerate to 6% in 4QFY26 due to improved consumption sentiment
• QC revenue: RMB20.8bn, up 56% YoY
• Adjusted EBITA: RMB34.6bn, down 43% YoY due to investment in QC and other areas
• Management targets: RMB1tn GMV by FY28, profitability by FY29

Alibaba International Digital Commerce Group (AIDC) - 12.7% of 3QFY26 revenue

• Revenue: RMB39.2bn, up 3.8% YoY
• International commerce retail: up 2.5% YoY, driven by AliExpress
• International commerce wholesale: up 10.4% YoY, due to value-added services
• Adjusted EBITA: RMB2.0bn loss, improved from RMB5.0bn loss in 3QFY25
• Expected profitability improvement in 4QFY26

Cloud Intelligence Group (CIG) - 14.0% of 3QFY26 revenue

• Revenue: RMB43.3bn, up 36% YoY
• Public cloud growth: driven by AI adoption
• Cumulative external revenue for FY26 exceeded RMB100bn
• Target: over US$100bn in combined cloud and AI external revenue within five years
• Adjusted EBITA: RMB3.9bn, up 25% YoY
• Adjusted EBITA margin: 9.0% (vs. 9.9% in 3QFY25)

All Others - 21.8% of 3QFY26 revenue

• Revenue: RMB67.3bn, down 25% YoY
• Decline attributed to the disposal of Sun Art and Intime businesses and reduced Cainiao revenue
• Increase in revenue from Freshippo and Alibaba Health
• Adjusted EBITA: RMB9.8bn loss, up from RMB3.2bn in 3QFY25
• Expected further loss in 4QFY26 due to investment in Qwen App

Forecast and Valuation

• Target Price: US$203.70 per ADS (previously US$206.40)
• SOTP-based Valuation:
  1. ACEG: US$77.2, based on 12x FY28E EV/adj. EBITA
  2. AIDC: US$12.5, based on 1.5x FY26E EV/revenue
  3. CIG: US$88.5, based on 7.5x FY27E EV/revenue
  4. All Others: US$14.8, based on 1.0x FY26E EV/revenue
  5. Strategic investments: US$10.7, with 30% holding discount
• Valuation Method: SOTP (Sum of the Parts)
• New Target Price: 22x FY28E PE (non-GAAP)

Revenue and Earnings Forecasts

Key Points and Main Views

• Consumption Recovery: There is a positive outlook for the consumption business, with expected growth in 4QFY26 and a long-term goal of profitability by FY29.
• Cloud Growth: Cloud revenue growth is accelerating, with a 36% YoY increase in 3QFY26 and a target of over US$100bn in combined cloud and AI revenue in five years.
• QC Investment: Continued investment in QC is expected to yield better unit economics and GMV targets.
• Investor Sentiment: The report maintains a BUY rating, highlighting Alibaba's strong position in the AI theme and its long-term growth potential.
• Valuation Adjustments: The target price was revised down due to lower-than-expected CMR and international commerce retail revenue, as well as increased QC losses.

Risks

• Margin Pressure: Continued investment in growth areas may impact margins more than expected.
• Consumption Recovery: The pace of recovery in the consumption business may be slower than anticipated.

Analyst Certification and Disclaimer

• The report is prepared by CMB International Global Markets Limited (CMBIGM), a subsidiary of China Merchants Bank.
• The analyst certifies that the views expressed reflect their personal opinions and are not influenced by compensation.
• The report is for informational purposes only and does not constitute investment advice.
• The information is based on publicly available data and is not guaranteed to be accurate or complete.
• CMBIGM is not liable for any loss or damage incurred from reliance on the report's content.