Alibaba's 2025 fiscal first quarter outlook: Market sentiment slightly bearish, focusing on strategic adjustments of Taotian Group

According to the financial news app Zhitong Finance, Alibaba (09988, BABA.US) is set to release its first-quarter fiscal year 2025 results before the market opens on August 15th, Eastern Time. Market consensus expects Alibaba to achieve revenue of 247.451 billion yuan in the latest quarter, a year-on-year increase of 5.68%; expected earnings per share of 12.19 yuan, a year-on-year decrease of 8.34%. Tianfeng Securities stated that due to Alibaba's emphasis on continuous investment to enhance competitiveness, the bank has raised its revenue forecasts for fiscal years 2025 to 2027 to 1.0249 trillion, 1.1236 trillion, and 1.2193 trillion yuan; Non-GAAP net profit forecasts have been raised to 156.5 billion, 162.2 billion, and 164.7 billion yuan.

According to Market Chameleon, looking back at the performance of the past 12 quarters, Alibaba has a higher probability of declining on the day of the earnings release, around 67%, with an average stock price change of ±5.8%, a maximum decline of -11.1%, and a maximum increase of +14.8%. Currently, Alibaba's implied change is ±5.8%, indicating that the options market is betting on a single-day price change of up to 5.8% after the earnings release; compared to the average stock price change of ±6.4% in the previous 4 quarters, the current options value is slightly undervalued. From the skewness of option volatility, market sentiment towards Alibaba is slightly bearish.

FY25Q1 Performance Outlook: GMV and Monetization Rate Expected to Improve

Specifically, with the full-site promotion of Taotian Group going online, GMV and monetization rate are expected to improve, with Tianfeng Securities forecasting a yoy+2.8% revenue for FY25Q1 Taotian Group.

In CY24Q2, overall retail consumption by residents continued to recover, with the year-on-year changes in total social retail sales in April/May/June at 2.3%/3.7%/2.0%; the year-on-year changes in online physical goods retail sales in April/May/June were -0.3%/0.3%/-10.0%. The performance of the 618 promotion was good, with 365 brands achieving over a billion in transactions on Tmall 618, over 36,000 brands doubling their transactions; Taobao's hundred-billion subsidy saw a 550% year-on-year growth in transaction amount; 1.9 million Taobao small and medium-sized merchants saw a more than 100% year-on-year growth in transaction volume. On April 16th, Alibaba Mom released full-site promotion, bridging the bidirectional channel between paid and organic traffic, with full-site promotion expected to become a key growth engine for the Taobao ecosystem, helping various types of merchants unleash new growth potential and potentially driving overall GMV growth and monetization rate improvement.

In terms of cloud business, with large models reducing prices and AI applications landing in multiple fields, Tianfeng Securities forecasts a yoy+4.8% revenue for FY25Q1 cloud business.

On May 21st, Alibaba Cloud announced a significant price reduction for its 9 commercialized and open-source series models. The price for Qwen-LongAPI, the main model of the Thousand Questions GPT-4 level, was reduced from 0.02 yuan per thousand tokens to 0.0005 yuan per thousand tokens. By the end of May, the Thousand Questions large model had been used by over 90,000 enterprises through Alibaba Cloud and over 2.2 million enterprises through DingTalk, with applications in fields such as automotive, aviation, mining, education, healthcare, catering, gaming, tourism, and moreIn terms of international e-commerce business, AliExpress has reached a cooperation with Magalu, and the monetization rate is expected to increase. TF Securities predicts that FY25Q1 international business revenue will increase by 34.7% year-on-year.

On May 20th, Alibaba injected $230 million into Lazada, which may further strengthen Lazada's competitiveness in the Southeast Asian e-commerce market. On June 25th, AliExpress reached a cooperation with Brazilian retailer Magalu. The two platforms are expected to significantly expand their product supply. Alibaba will charge a commission on AliExpress products sold on Magalu, and the cooperation may increase the monetization rate of international e-commerce.

In other business aspects, TF Securities predicts that FY25Q1 local life revenue will increase by 11.1% year-on-year; Cainiao's revenue is expected to increase by 28.1% year-on-year, and DME's revenue is expected to decrease by 5.0% year-on-year.

Stock Price Catalysts for Upside Movement

It is worth noting that Taotian Group, which has not been able to stand out in terms of pricing, has launched a comprehensive strategic adjustment. Along with the announcement of the relaxation of the "refund only" policy, Taobao also announced the solicitation of opinions on the "Taobao Seller Basic Software Service Fee Rules". Starting from September 1st, Taobao and Tmall will charge a 0.6% "basic software service fee" for orders with a transaction status of "transaction success" (i.e., buyers confirming receipt).

Alibaba has changed the service fee structure on Taobao, charging 0.6% of the order amount as a "basic software service fee". For small merchants with sales less than RMB 120,000, Taobao will refund all service fees; while for merchants with sales between RMB 120,000 and RMB 1 million, Taobao will issue marketing coupons equivalent to half of the service fee.

During the earnings conference in May this year, Alibaba Group CEO Eddie Wu mentioned that enhancing product competitiveness, efficiency, customer service, and consumer experience to drive GMV growth and user consumption frequency are the top priorities for this year.

The progress of this strategic adjustment has also become a focus of market attention on Alibaba.

In response, Fuli Securities pointed out that the 0.6% basic software service fee will be charged starting in September, expected to have a positive impact on CMR. The bank estimated that assuming the group's annual GMV is RMB 80 trillion, the service fee would be around RMB 31 billion. Assuming there are 500,000 Tmall merchants, the annual fixed service fee would be about RMB 23 billion, with an impact on annual revenue of about RMB 8 billion, accounting for about 0.1% of the total GMV.

JP Morgan believes that the new service fee policy will benefit future stock prices and profit prospects in the coming quarters, expecting the policy to increase revenue by RMB 21.7 billion and profit by RMB 13 billion in 2025. It will not affect Taobao's competitiveness, as the platform's overall withdrawal rate is only 2% to 3%, still lower than other peers.

Additionally, as of June 30, 2024, Alibaba has repurchased a total of 613 million ordinary shares, amounting to $5.8 billion. The remaining board-authorized amount in the stock repurchase plan is $26.1 billion, valid until March 2027. Furthermore, the company disclosed progress on voluntarily converting to a dual primary listing on the Hong Kong Stock Exchange in the FY24Q4 financial report, preparing for the main listing in Hong Kong, expected to be completed by the end of August 2024Furui stated that Alibaba will see more catalysts for stock price increase. The bank predicts that after Alibaba's dual primary listing on August 24th, there is a potential opportunity for inclusion in the "Stock Connect" on September 24th; the company has repurchased $10.6 billion worth of shares in the first half of the fiscal year, with a remaining repurchase quota of $26.1 billion, and the progress of repurchases will continue to boost investor confidence