Guosen Securities has issued a research report slightly adjusting its revenue forecasts for Alibaba-W (09988) for FY2027-FY2029 to RMB 1,128.6 billion / 1,306.8 billion / 1,515.2 billion, with adjustments of +0.2% / +0.7% / +2.7%, and its adjusted net profit for FY2027-FY2029 to RMB 103.2 billion / 133.4 billion / 171.0 billion, with adjustments of +12% / +10% / +9%, mainly reflecting cloud business growth, the pace of margin improvement, and better-than-expected narrowing of food delivery losses.
The company currently trades at 21x FY2027 PE, and the Outperform rating is maintained. The broker believes that FY27Q2 profit elasticity mainly comes from a significant narrowing of instant retail losses, cloud business growth, and a narrowing of AI Lab losses, and expects that by FY27Q3 the company's cloud business plus AI Lab will achieve breakeven on an overall basis.
Key views from Guosen Securities
Recent events
Alibaba-W is about to release its financial results for the second quarter of fiscal year 2027. FY27Q2 revenue is expected to reach RMB 270.2 billion, up 9.1% year on year. FY27Q2 adjusted EBITA is expected to be RMB 30.4 billion, up 235% year on year, with an adjusted EBITA margin of 11.2%, up about 7.6 percentage points year on year, mainly due to a significant narrowing of instant retail losses, and up 1.1 percentage points quarter on quarter, mainly from narrower food delivery losses, cloud business growth, and a narrowing of AI Lab losses.
Cloud Intelligence Group
FY27Q2 cloud revenue is expected to grow 51% year on year, with external customer growth outpacing internal, and the EBITA margin rising quarter on quarter to 13%. The broker believes this is mainly driven by rising computing power leasing prices and a growing share of high-margin AI cloud business continuously pushing margin improvement. Along with continued growth in cloud revenue and profit, the company's cloud business plus AI Lab is expected to achieve overall breakeven by FY27Q3, corresponding to a cloud business adjusted EBITA margin of 15%, and the broker expects the company to maintain high growth in FY28 with a year-on-year growth rate of more than 50%. The company has proposed that its data center scale exceed 20GW by 2032. The broker estimates Alibaba's data center capacity at about 2GW in 2022, implying a tenfold increase over 10 years, and about 5GW in 2026, corresponding to an annual increase of 2.5GW thereafter. Based on about USD 30 billion per GW, this implies average annual investment of RMB 525 billion, but the company will advance this through co-building with partners, with half borne by itself, so the corresponding future annualized CAPEX of about RMB 260 billion would put relatively controllable pressure on the company's cash flow. In the quarter, the company continued to make progress in AI: 1) Models: Qwen3.8-Max strengthens coding and agent capabilities, while the Omni series advances all-modal interaction. At the Yunqi Conference, LiveTranslate and the Audio 3.1 series were released; Qwen4 is still in training, with Qwen4.5 and Qwen5 on the subsequent roadmap.
China E-commerce Group
1) E-commerce: FY27Q2 CMR is expected to fall 5%-6% year on year under the disclosed basis and rise about 1% year on year under the original basis, flat versus the previous quarter, in line with the trend of online goods retail sales growth, but the gap with growth under the new basis narrows, mainly because this quarter is an off-season for e-commerce and marketing-related investment decreased. On the profit side, domestic e-commerce adjusted EBITA is expected to be flat year on year, better than the June quarter performance, while considering domestic and overseas e-commerce together, adjusted EBITA is expected to rise 2%-3% year on year, mainly due to refined operations in overseas e-commerce. 2) Instant retail: FY27Q2 overall loss is expected to be about RMB 9 billion, slightly better than the broker's previous expectation. Assuming average daily order volume of 73 million orders, covering flash purchase, Hema, and Tmall Supermarket instant delivery, the corresponding loss per order is about RMB 1.4. The broker expects both order volume and average order value to rise quarter on quarter this quarter, with order volume increasing more.
Other
1) AI Lab: The AI Lab loss this quarter is expected to be RMB 10 billion to RMB 11 billion, narrower than about RMB 14 billion in the previous quarter. 2) All others: The loss from all other businesses is about RMB 3 billion, flat quarter on quarter.
Risk warning
Policy risks, market risks such as intensifying competition from new entrants, and systemic macroeconomic risks.
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