Highlights

• Alibaba’s 1QFY27 revenue was largely in line. Revenue grew 9% yoy to Rmb269.0b, in line with estimates. Non-GAAP net profit was Rmb20.7b,
  down 38% yoy, missing our forecast, due to its investment in technology businesses and user experience. In 2QFY27, management expects: a) accelerating growth in cloud revenue and a continuous improvement in EBITA margin, b) a further narrowing of quick commerce losses, and c) a recovery in e-commerce EBITA margin. Maintain BUY with a lower target price of HK$188.00 (US$192.00).
   

Analysis

• E-commerce broadly in line. In 1QFY27, Alibaba Group’s (Alibaba) customer management revenue (CMR) declined 7% yoy, or grew 1% on a
  like-for-like basis excluding the contra-revenue impact from the new merchant incentive programme, while e-commerce group adjusted EBITA declined just 1%. Quick commerce revenue grew 45% yoy, driven by Freshippo and Taobao Instant Commerce.
   
• Cloud was the clear highlight. AI Cloud & Compute revenue grew 45% (vs 38% in 4QFY26) yoy, in line with our expectations, while AI-related revenue reached Rmb12.4b and maintained triple-digit growth for the 12th consecutive quarter. Cloud adjusted EBITA margin reached 11.6% (vs 9% in 4QFY26), albeit not being directly comparable following the T-Head integration, supported by improving operating efficiency. AI-related revenue reached Rmb12.4b vs (vs Rmb9b in 4QFY26), equivalent to US$7.3b annualised run rate. Al labs and applications grew 16% yoy to Rmb3.3b, while adjusted EBITA loss widened to Rmb13.9b from Rmb3.2b, reflecting higher AI investment and Qwen App inference costs.