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

According to a new report by Morgan Stanley:

After stabilizing its GMV market share, Alibaba is expected to better monetize through the introduction of new advertising tools and software service fees to exceed expectations in reducing losses of non-core business. The completion of the Hong Kong major listing conversion at the end of August will be the next important checkpoint.

Deutsche Bank pointed out that the high-digit growth of GMV of Taobao and Tmall group (TTG) in Q1 means that the market share has stabilized from loss but the increase of customer management revenue (CMR) is only 1%, still highlighting the trend of commission rate decline. Alibaba stated that this trend is due to its priority strategy of considering customers and GMV growth, leading to the adoption of new forms (i.e., live streaming, RMB subsidy plan) to promote GMV development, but less radical in terms of monetization.

Goldman Sachs also forecasts further increase in monetization rate:

The management's focus for the next stage of Taotianxia will be to improve monetization, and it is expected that the growth of CMR will gradually align with the growth of GMV in the future few quarters after the current GMV market share stabilization stage. The expectation for double-digit growth in external cloud revenue in the second half of the 2025 fiscal year has been reiterated, which balances investment in capital expenditure and profitability due to accelerating trends in AI/computing demand. The goal is to reverse the loss of non-core business within 1-2 years, which will ultimately contribute to the group's profitability.

Deutsche Bank, Goldman Sachs: Monetization will increase in the coming quarters

Deutsche Bank expects that after the GMV market share stabilizes, it will better monetize through the following two measures:

Accelerating the promotion of the whole-station marketing tool, which requires coordination of user traffic, ensuring sufficient number of advertisers and industry coverage, and optimizing algorithms and user data; Starting from September, a 0.6% software service fee will be charged, and monetization will be better in the future few quarters.

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

Goldman Sachs stated that the inflection point of monetization rate will appear:

With the launch of new advertising products from April 2024, it will take 6 to 12 months to form significant effects and growth, as well as the upcoming software service charges from September 2024. We expect that the multiple monetization-driven factors will drive Taotian's monetization rate to appear inflection point from the September quarter, and forecasted GMV growth for the fiscal year 2025/26/27 will be 6%/4%/4% respectively (previous: 5%/3%/3%), and the CMR growth forecast for the second, third, and fourth quarters of fiscal year 2025 will be raised to 2%/3%/4% (previous: 1%/2%/3%). The monetization rate will stabilize in the fourth quarter of fiscal year 2025 and the first quarter of fiscal year 2026.

Regarding other businesses, Deutsche Bank pointed out that:

1. Public cloud and AI: related revenues achieved double and triple growth in the first quarter, respectively. The strong demand for AI and the limited impact of macro environment on overall IT budgets are expected to continue to achieve double-digit growth in the second half of the year. Capital expenditure reached RMB 12 billion in the first quarter, up from RMB 7 billion in the same period last year, and this growth may continue.

2. International business: High-quality growth and improving operational efficiency will be the main focus. We see that the momentum of growth of AliExpress and Trendyol has continued, while Lazada will continue to improve its profitability, achieving balanced EBITDA in July.

Looking ahead to the second quarter, Deutsche Bank said that considering the management's commitment to invest in core capabilities while increasing the profitability of non-core businesses, revenue is expected to be RMB 236.8 billion, a YoY increase of 5.3%, and the adjusted EBITA is expected to be RMB 42.5 billion, a YoY increase of 0.8%.

In addition, Alibaba still plans to complete its major dual listing at the end of August and seek shareholder approval at its annual shareholder meeting on August 22. Based on this timeline, Deutsche Bank expects it to be included in the southbound stock connect and may have another catalyst in September and raises its target price to $90.