CICC released a research report stating that BABA-W (09988, BABA.US) currently trades at 16/18x FY26 and 13/15x FY27 non-GAAP P/E multiples for Hong Kong and US shares respectively. The firm lowered FY26 revenue forecast by 3% to 1,068.3 billion yuan due to the deconsolidation impact of RT-Mart and Intime, and reduced FY26 non-GAAP net profit attributable to shareholders by 29% to 121.8 billion yuan, primarily due to increased investment in Taobao Express Shopping. The firm introduced FY27 revenue and profit forecasts of 1,215.1 billion yuan and 149.3 billion yuan respectively, switched Alibaba's valuation to sum-of-parts methodology and shifted to FY27 valuation basis. Based on 13x P/E for e-commerce business and 3.5x P/S for cloud computing business, mainly due to both e-commerce and cloud segments achieving independent profitability and valuation center adjustment, this corresponds to US and HK target prices of $151 and HK$147 respectively, representing a 35% increase from previous target prices. The firm maintains its Outperform rating, with 27% and 12% upside potential from current HK and US stock prices respectively.
CICC's main viewpoints are as follows:
**1QFY26 Revenue and Adjusted EBITA Below Market Expectations**
The company announced 1QFY26 (2Q25) results: revenue increased 1.8% year-over-year to 247.7 billion yuan, with comparable growth of 10% after excluding the impact of RT-Mart and Intime; adjusted EBITA declined 13.7% year-over-year to 38.8 billion yuan, mainly due to increased investment in Taobao Express Shopping, partially offset by reduced losses in international business.
**Cloud Computing Capex Rising, Revenue Growth Accelerating**
1QFY26 cloud revenue increased 25.8% year-over-year, with external customer revenue up 26%, primarily driven by public cloud and AI. AI-related revenue accounted for over 20% of external customer revenue for the first time, with AI also driving rapid growth in traditional computing and storage products. 1QFY26 cloud business EBITA reached 2.95 billion yuan, corresponding to a profit margin of 8.8%, mainly due to public cloud scale effects and efficiency improvements, partially offset by new investments. Quarterly capex increased to 38.6 billion yuan. Supply chain disruption impact remains limited, with the company maintaining guidance of 380 billion yuan investment over three years. The firm expects supply constraints to ease as investments increase. Alibaba possesses leading open-source large model capabilities and a comprehensive AI ecosystem, which is expected to drive rapid AI business growth, thereby achieving cloud computing revenue growth acceleration and cloud valuation enhancement.
**Taobao Express Shopping Sees Both Order Volume and Traffic Growth, July Expected to Be Loss Peak**
August 2025 instant retail monthly active buyers reached 300 million, with Taobao monthly active buyers up 25% year-over-year and daily average orders reaching 80 million, achieving user scale and user awareness building targets. From operational efficiency perspective, short-term Express Shopping UE losses are significant. The firm expects July to be the UE loss peak, followed by gradual UE improvement through capacity optimization, efficiency enhancement, and user and order structure optimization. UE losses are expected to narrow by half compared to July after September. The firm estimates 1QFY26 and 2QFY26 Taobao Express Shopping EBITA losses at 11.2 billion yuan and 31.6 billion yuan respectively, corresponding to per-order losses of 3.3 yuan and 4.7 yuan. Full-year Taobao Express Shopping EBITA loss is estimated at 74.3 billion yuan, corresponding to per-order loss of 3.1 yuan.
**E-commerce Continues to Focus on Core Users and Merchants, Observing Express Shopping Synergy Trends**
1QFY26 Customer Management Revenue (CMR) increased 10% year-over-year. The firm estimates Taotian GMV grew 5%, mainly driven by increased penetration of software technology service fees and site-wide promotion advertising. Despite high base effects, the firm predicts CMR could maintain high single-digit to double-digit year-over-year growth in the next few quarters, primarily due to effective traffic boost from Express Shopping business, thereby boosting advertising revenue. Express Shopping is expected to contribute 2 percentage points positive impact to CMR year-over-year growth over the next three quarters, but its GMV impact remains to be observed.
**Risk Warning:** Macroeconomic and regulatory uncertainties, intensified competition risks.