2% YoY topline and RMB23.4bn adj. EBITA in 3QFY26 missed consensus by 2% and 25% respectively. Tepid core China eC CMR, quick commerce and accelerated cloud revenue were 1% YoY, 56% YoY and 36% YoY respectively. We expect Co. firmly committing to scale investments aggressively in coming years to accomplish its corresponding mid- to long-term targets for cloud and quick commerce respectively, i.e, i) over US$100bn external cloud revenue in FY2031 (est. 40%+ 5-year CAGR); and ii) over RMB1trn GMV in FY2028 with full year operating breakeven in FY2029. Maintain BUY and our SOTP TP is unchanged at US$187.0/HK$182.0.
Key Factors for Rating
Leading beneficiary amid explosive AI demands on full stack capabilities solidified by bold investments. Co. sets an aggressive US$100bn+ external cloud revenue target in FY2031 (estimated 40%+ 5-year CAGR) supported by its advanced full stack AI capabilities with streamlined organisational structure, especially industrialised “Alibaba Token Group” establishment amid explosive AI demands tailwinds globally. Co. prioritises cloud revenue growth in coming years with improved marginal profit margin mainly due to leverage and in-house chips. For quick commerce, Co. reiterates its RMB1trn GMV target in FY2028 despite intense competition with full year breakeven target in FY2029. Thus, we fine tune our FY2026-28E topline estimates by significantly raising cloud forecast while decreasing our eCommerce revenue estimates. Our significant cut on FY2026-28E bottom line estimates reflect Co.’s determination to accomplish its mid- to long-term AI + Cloud and consumption targets.
3QFY26 missed; robust cloud momentum. Total revenue grew 2% YoY to RMB284.8bn (+9% YoY considering Sunart and Intime deconsolidation). Core China eC CMR grew at 1% YoY. Quick commerce revenue delivered +56% YoY. Cloud revenue remained robust at accelerated 36% YoY with external cloud revenue accelerating to 35% YoY and AI related product continuing delivering triple digit YoY for 10th consecutive quarter. Adj. EBITA decreased by -57% YoY to RMB23.4bn. RMB17.1bn adj. net profit attributable missed streets’ expectation by 42%. Capex was RMB29.0bn.
Key Risks for Rating
Downside: i) intensified competition; ii) weak macro and online consumption sentiments; iii) underperformed synergies brought by quick commerce; iv) AI and cloud growth deterioration; and v) dampened partnerships.
Valuation
Maintain BUY and our SOTP TP is unchanged at US$187.0/HK$182.0, derived from i) US$65.0 on 10.0x FY2026E total core commerce adj. EBITA; ii) US$101.0 on 5.0x FY2028E cloud revenue; iii) US$15.0 on 1.0x FY2026E other innovative business revenue; and iv) US$6.0 on share of listed and private investments.