BABA Earnings Preview: "Model Supermarket" Business Expected to Drive Alibaba Cloud Revenue Acceleration

$Alibaba (BABA.US)$ is scheduled to release its financial results pre-market on May 13 ET. During the previous quarter's earnings call, management projected that MaaS (Model as a Service) revenue would surpass IaaS, eventually becoming the top product. They also set an annual revenue target of $100 billion for Cloud and AI in five years, implying a compound annual growth rate (CAGR) of over 40%. Beyond that, investors are also closely watching the reduction in losses from China's instant commerce sector, as well as the performance of overseas retail operations.

Core Financial Indicators

– Alibaba's revenue is expected to be ￥247.09B for FY2026 Q4, up 4.50% YOY;

– GAAP EPS is estimated to be CNY3.825, down 26.01% YoY.

Three Things to Watch

Alibaba Cloud Business

Buoyed by optimistic projections for MaaS and rising external demand for other cloud services, the market expects Alibaba Cloud's revenue to grow over 37% year-on-year in FY 2026 Q4, reaching 41.4 billion RMB. Goldman Sachs, meanwhile, forecasts an even higher growth rate of 40%.

The key catalysts for Alibaba Cloud include:

1. A "scissors difference" where the drop in unit compute price of chips outpaces the decline in cloud service prices, creating a favorable margin environment for the overall cloud sector.

2. Amid the fiercely competitive "war of models" in China, Alibaba is positioned to benefit by acting as a "model supermarket"—much like Amazon Web Services (AWS)—capturing value from the intense industry rivalry.

3. Since the base of AI-driven cloud revenue in China is lower, the boosting effect on overall cloud business will manifest slightly later compared to the US market.

4. In terms of profitability, Alibaba Cloud's current EBITA margin stands at around 9%, which remains significantly lower than the over 30% margins seen at global leaders like AWS and Microsoft Azure. Previously, management outlined three pathways to improve margins: spreading fixed costs over a larger revenue scale, boosting gross margins by upgrading AI offerings from resource sales to intelligent capability sales, and reducing inference costs through T-Head's in-house developed chips.

China E-commerce Business

The focus is on the narrowing of losses in the instant commerce business. Alibaba does not separately disclose the losses; the estimated figure is derived by subtracting the reported China Commerce segment EBITA from a baseline EBITA for the traditional e-commerce business.

The market estimates that Instant Commerce posted a loss of RMB 21 billion in the preceding quarter, while the projected loss for FY2026 Q4 (to be reported) is approximately RMB 18 billion—a modest narrowing of losses. Management previously indicated that Instant Commerce is expected to achieve overall profitability by FY2029. Based on this guidance, the market extrapolates that the business's losses will roughly halve year-over-year in FY2027 and FY2028, respectively.

International Business

There may be progress in loss reduction in Southeast Asia. The market expects that the continued expansion of AliExpress Choice's five-day delivery service in the second half of last year will contribute incremental revenue growth. Bloomberg consensus estimates show market expectations for the international e-commerce segment's revenue at approximately RMB 35.9 billion, with year-over-year growth recovering somewhat.

Option Market Signals

The company's current put/call ratio is 0.60, indicating a bullish momentum. Its implied volatility is 49.58%. According to historical data, Alibaba's stock price fluctuated by an average of 5.61% after the company released its earnings report 12 times in the past.

Summary of Risks and Opportunities

– Potential Positive Catalysts: Cloud services acceleration

– Risks to Monitor: China e-commerce competition; CapEx increase

– Valuation:

Alibaba's PE ratio is 24.60 times, which is at the 70th percentile of its historical range over the past five years.

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