BABA- F2Q26 Preview: Early Signs of Quick Commerce Payoff, Yet Risk-Reward Looks Balanced; Maintain HOLD and $180 PT
Tiger Research team are maintaining HOLD rating and $180 price target as they fine-tune their estimates ahead of F2Q earnings.
Below are some highlights of their report.
While our F2Q revenue estimate is modestly reduced, we are cutting our EBITDA forecast by more than half, as losses from quick commerce more than doubled in the September quarter due to seasonality and BABA’s continued push to expand market share. We estimate quick commerce losses reached RMB 35–40 billion in the September quarter, up sharply from the low-teen billions in the June quarter, reflecting both a full-quarter impact and strong seasonal demand.
On a positive note, investments in quick commerce are beginning to yield results, contributing an incremental 2–3 ppts to core CMR revenue growth—helping offset the 0.6% service-fee lapse that took effect on September 1, 2024. We model 10% y/y CMR growth, sustaining the solid momentum from F1Q. In addition, unit economics are improving rapidly at scale, with per-order losses on track to halve by year-end.
We also raise our F2Q cloud revenue estimate by 5%, now projecting 28% y/y growth (up 2 ppts q/q), driven by robust demand for AI compute. However, we expect Cloud’s EBITA margin to remain roughly in the high-single-digit range in the near term, as BABA continues to prioritize market share over profitability given the sizable AI opportunity.
In AIDC, we anticipate a more conservative stance, with management likely emphasizing profitability over top-line growth amid ongoing geopolitical uncertainties.
Overall, while BABA’s heavy investments in quick commerce could accelerate long-term revenue and profit growth, they represent a significant near-term drag on earnings. The sector also remains intensely competitive, and peers may similarly ramp up spending to defend market share—potentially limiting BABA’s ROI. At 13.6× NTM EV/EBITDA versus Amazon’s 13.0×, BABA now trades at a slight premium after years of discount. Thus, while the stock could continue to benefit from improving U.S.–China trade sentiment, we see a balanced risk-reward profile and maintain our HOLD rating.
Estimates Revisions. F2Q total net revenue is reduced by 2%, but lowering EBITDA estimate by 56%. FY26 revenue estimate is reduced by 2%, and EBITDA estimates is lowered by 26%.
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