Alibaba Q2 Analyst Call Review: Data Better Than Expected

Alibaba gave analysts a positive update this morning, with data outperforming expectations. Particularly notable is the 45% growth in Cloud, surpassing the upper limit of the expected 40%. In addition, with the narrative intensifying that hardware is eroding the profits across the industrial chain, the market may begin to trade based on profit expectations from the Cloud segment.For Alibaba’s Q1 FY2027 (June quarter) performance outlook, the Group’s revenue is expected to grow by 9% year-on-year, in line with market expectations. Adjusted EBITA is expected to be 26 billion yuan, higher than the market consensus estimate of 24 billion yuan.The profit beat derives from three factors: the efficiency of e-commerce subsidies, Cloud profit margins, and faster loss reduction in instant retail.1. E-commerceCustomer Management Revenue (CMR) for the June quarter is expected to decrease 7-8% year-on-year, compared to a 1% increase last quarter. The decline is mainly due to the accounting treatment of merchant subsidies, as subsidies directly offset revenue and simultaneously reduce sales expenses, having no impact on EBITA. Excluding this factor, CMR would grow 1-2% year-on-year, versus 8% last quarter, with the slowdown roughly in line with official online retail statistics.The real incremental information lies on the profit side. E-commerce EBITA is expected to decline 3-4% year-on-year, with the gap with CMR growth narrowing by 3-4 percentage points compared to last quarter, better than expected. The combined EBITA for domestic e-commerce and AIDC remains flat year-on-year.The platform is seeking to optimize both subsidy collection and efficiency improvement.2. CloudCloud revenue for the June quarter is expected to grow 45% year-on-year (UTC+8), exceeding the market expectation of 40%. Management anticipates acceleration in the coming quarters. EBITA margin is expected at 11-12%, driven by an increased proportion of high-margin MaaS and greater contribution from the self-developed Pingtouge chips; the long-term margin target is 20%.Cloud is the most important variable in this outlook. Both revenue acceleration and margin improvement are occurring simultaneously, with AI investment beginning to flow into the income statement.Instant Retail is reducing losses faster than expected. For the June quarter, loss is expected to narrow to around 10 billion yuan (UTC+8), from 18 billion yuan last quarter, also declining year-on-year.Other businesses were in line with expectations, with a June quarter loss of 17 billion yuan (UTC+8) compared to 21 billion yuan last quarter. The company will subsequently disclose Qwen App and training costs separately, enhancing transparency.Overall, this quarter’s focus has shifted from revenue to profit quality. The slowdown in e-commerce growth was already anticipated; the acceleration in Cloud and broad-based loss reduction are the key drivers for re-rating by the market.Whether these expectations can be realized will become clear with the official financial results at the end of August.