JPMorgan has issued a research report maintaining its "Overweight" rating on Alibaba-W (09988) while lowering the target price from HK$200 to HK$195. The valuation is based on a projected price-to-earnings ratio of 16 times for the 2028 fiscal year, with core e-commerce valued at 14 times estimated earnings for fiscal 2026 and cloud business at 6 times estimated earnings for the same period. Alibaba is set to report its earnings for the first quarter of 2026 (March quarter). The company’s stock has undergone significant revaluation, supported by prospects in China’s AI infrastructure development, with cloud revenue growth serving as a key financial driver.
Market expectations for the quarter include customer management revenue growth of 4% to 9%, external cloud revenue growth of approximately 40%, and losses in the "other businesses" segment ranging from RMB 10 billion to RMB 15 billion. While e-commerce remains the primary profit contributor, investors generally view stable performance as acceptable. JPMorgan suggests that market expectations are inaccurate for two of these three metrics, projecting that Alibaba will report customer management revenue growth of around 1% and losses in the "other businesses" segment nearing RMB 20 billion. Cloud business performance is expected to align with consensus estimates.
The overall impact on consolidated EBITA is seen as slightly negative, though the composition of results is considered more important than the magnitude. JPMorgan anticipates that the stock may underperform initially due to weaker-than-expected customer management revenue figures. However, the upcoming quarterly results could redefine key market indicators. If Alibaba discloses "comparable customer management revenue" in its financial report and investors focus on EBITA trends, the downside may be limited.
A more persistent risk lies in excessive investment in Qianwen. If management can credibly frame Spring Festival-related expenditures as one-time and guide for significantly reduced spending in future quarters, the current quarter could serve as a clearing event—marking a bottom in consolidated profits followed by improvement. Otherwise, the market may begin pricing in an "open-ended AI investment cycle," compounded by drag from food delivery operations, which could compress e-commerce valuations. JPMorgan leans toward the former scenario but expresses limited confidence in Qianwen’s future trajectory.
Regarding e-commerce fundamentals, the bank holds greater assurance: while flat EBITA may not independently drive revaluation, the direction is positive, and further improvement is expected in coming quarters as competitive conditions normalize.
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