Morgan Stanley stated that despite a short-term slowdown in core e-commerce (CMR) growth, Alibaba's investment thesis remains anchored by the solid performance of its cloud division, Alibaba Cloud.
According to trading desk reports on November 26, Morgan Stanley highlighted in its latest research note that Alibaba Cloud is supported by robust industry demand. Management indicated that current demand exceeds supply, suggesting the existing three-year capital expenditure guidance of RMB 380 billion may be insufficient to meet customer needs.
Analysts led by Gary Yu noted that newly launched AI applications, such as the Quark AI Assistant and Tongyi Qianwen, are expected to further drive user adoption. The bank forecasts Alibaba Cloud revenue growth of 35% in Q3 FY2024 (December quarter) and 36% in Q4 FY2024 (March quarter next year).
Meanwhile, Morgan Stanley anticipates Alibaba's Customer Management Revenue (CMR) growth will slow to 7.5% due to macroeconomic headwinds. Cainiao's unit economic losses are projected to narrow to RMB 25 billion, in line with market expectations.
The report emphasized that Alibaba's current narrative is one of "cloud growth acceleration + narrowing losses in on-demand commerce," with its stock price yet to fully reflect the AI-driven upside potential in cloud. The bank maintains an "Overweight" rating on Alibaba with an unchanged target price of $200, implying 27% upside from current levels.
Earlier reports noted that Alibaba's cloud growth and AI-related capex exceeded expectations, briefly driving its U.S.-listed shares up 4% pre-market. However, optimism faded post-earnings, with shares closing over 2% lower.
**Alibaba Cloud: Demand Outstrips Supply, Steep Growth Trajectory** Morgan Stanley dismissed market concerns over cloud performance, asserting that Alibaba Cloud's growth thesis remains intact. The bank projects Q3 cloud revenue growth at 35%, accelerating to 36% in Q4 and potentially reaching 40% by FY2027. Management's bullish commentary on demand-supply imbalance—where demand currently exceeds capacity—signals a key bullish catalyst, with cloud poised as the primary earnings driver.
Alibaba Cloud's AI-related revenue has delivered triple-digit growth for nine consecutive quarters. New AI applications are expected to further boost adoption. In Q2 FY2024, cloud revenue rose 34.5% YoY to RMB 39.8 billion, with adjusted EBITA of RMB 3.6 billion (9% margin), surpassing Morgan Stanley's estimates.
**E-Commerce Under Macro Pressure; Cainiao Losses Better Than Feared** The bank forecasts Q3 core e-commerce CMR growth slowing to 7.5%, weighed down by weak macro conditions. October online retail sales growth decelerated to 5%, while parcel volume growth dipped to 8% from low double-digits in September, likely dragging GMV.
High base effects from last September's service fee implementation offset margin improvements from site-wide marketing tools and Cainiao's ad contributions. In Q2 FY2024, Alibaba's China commerce adjusted EBITA fell 76.3% YoY to RMB 10.5 billion, impacted by quick commerce investments.
Cainiao's losses improved relative to fears, with Q3 loss projections revised down to RMB 25 billion from RMB 37 billion. The unit achieved its target of halving economic losses while maintaining ~40% GMV share and stable order share. Morgan Stanley expects Cainiao losses peaked in Q2 and will narrow in Q3. Group e-commerce EBITA is projected at RMB 37 billion (down 40% YoY), with total EBITA at RMB 32 billion (down 41%).