Alibaba: GMV stabilized, next step "monetization" for profitability

Alibaba released its Q1 financial report for the 2025 fiscal year on Thursday, benefiting from the increase in business scale and operational efficiency. Alibaba's core business achieved steady growth this quarter, with Taotian Group's GMV and order volume doubling, and the cloud business returning to a growth track.

Morgan Stanley pointed out in its latest report:

After stabilizing GMV (market share), Alibaba will better monetize by launching new advertising tools and charging software service fees. Non-core business losses exceeded expectations, and it is expected that the completion of the major listing conversion in Hong Kong by the end of August will be the next important test.

Morgan Stanley also stated that Taobao and Tmall Group (TTG) saw high single-digit GMV growth in Q1, indicating that market share stabilization is trending towards stability. However, customer management revenue (CMR) growth was only 1%, highlighting a trend of declining commission rates. Alibaba explained that this trend is due to its strategic focus on users and GMV growth, leading to the adoption of new initiatives (such as live streaming, RMB subsidy plans) to drive GMV development, but not as aggressively in monetization.

Goldman Sachs also expects further improvement in monetization:

Management's focus on the next phase of Taotianxia will be to improve monetization, following the current phase of stable GMV market share, and expects CMR growth to gradually align with GMV growth in the coming quarters; reiterating the expectation of double-digit growth in external cloud revenue in the second half of the 2025 fiscal year, balancing investments in AI/computing demand and profitability; the goal is to turn around non-core business losses within 1-2 years, which will eventually contribute to the group's profitability.

Morgan Stanley, Goldman Sachs: Monetization to Improve in the Coming Quarters

Morgan Stanley expects that after stabilizing GMV market share, with the introduction of the following two measures, "monetization" will be better achieved:

Accelerate the promotion of full-site marketing tools, which requires coordinating user traffic, ensuring a sufficient number of advertisers and industry coverage, as well as optimizing algorithms and user data; starting from September, charging a 0.6% software service fee, monetization in the coming quarters will be better.

For Q2, we expect GMV and CMR to grow by 6% and 3% respectively year-on-year. With continued reinvestment, we predict TTG's EBITA to be 46.6 billion RMB, a 1% year-on-year decrease.

Goldman Sachs, on the other hand, stated that the inflection point of monetization rate will occur:

The new advertising products launched in April 2024 will take 6 to 12 months to show significant effects and growth, as well as the upcoming software service fees starting from September 2024. **We expect multiple monetization improvement drivers to push Taotian's monetization rate to inflect from the September quarter onwards. We now forecast Taotian's GMV growth for the 2025/26/27 fiscal years to be 6%/4%/4% (previously: 5%/3%/3%), and raise the CMR growth forecast for the second, third, and fourth quarters of the 2025 fiscal year to 2%/3%/4% (previously: 1%/2%/3%), with the monetization rate stabilizing in the fourth quarter of the 2025 fiscal year/first quarter of the 2026 fiscal yearIn other business areas, Morgan Stanley pointed out:

1. Public Cloud and AI: Related revenues achieved double-digit and triple-digit growth in the first quarter, with strong AI demand and limited macroeconomic impact on overall IT budgets. It is expected to continue achieving double-digit growth in the second half of the year. Capital expenditures reached 12 billion yuan in the first quarter, an increase from 7 billion yuan in the same period last year, and this growth is likely to continue.

2. International Business: High-quality growth and improving operational efficiency will be the main focus. We see continued momentum in AliExpress and Trendyol's growth, while Lazada will continue to improve profitability, achieving EBITDA breakeven in July.

Looking ahead to the second quarter, Morgan Stanley stated that considering management's commitment to investing in core capabilities and improving the profitability of non-core businesses, revenue is expected to be 236.8 billion yuan, a year-on-year increase of 5.3%, with adjusted EBITA of 42.5 billion yuan, a year-on-year increase of 0.8%.

Furthermore, Alibaba still plans to complete its dual primary listing by the end of August, seeking shareholder approval at the annual general meeting on August 22nd. Based on this timeline, Morgan Stanley expects inclusion in the Stock Connect in September, potentially welcoming the next catalyst, and has raised the target price to $90