Episode Details

Alibaba Group (BABA) Q1 FY2027 — Q1 FY2027 (June quarter 2026, ended June 30): revenue RMB268,953M / $39.64B, +8.6% and ahead of a $38.63B bar. Non-GAAP EPS per ADS $1.26 vs $1.85 expected, -31.9% and down 42.2% y/y. Adjusted EBITA RMB27.3bn, -29.6%. Released pre-market August 20: the shares gapped -4.21%, bought back 130% of that gap and closed +1.26% at $130.53. The next session opened -3.97% and closed -8.57% at $119.34 - the worst session of the last twelve months, on 15.8% more volume, below the reaction day's low. Two numbers in this quarter round to 92%, and only one is real. The data-screen miss of -91.8% ($0.16 actual vs a $1.94 estimate) is an 8-to-1 units error: $0.16 is per ORDINARY share and the bar is per ADS. Corrected, it is $1.26 against $1.85, a 31.9% miss. But 92.4% of the actual adjusted-profit decline really did come from ONE segment - AI Labs and Applications, a reporting line created this quarter. THE CALL: AVOID (3/5, THE MISS WAS SMALLER THAN THE SCREEN SAID AND THE SPENDING IS LARGER THAN THE RETURN) — base-case value ~$101.50 vs ~$119.34 today. KEY METRICS: - THE UNITS ERROR: the vendor carries epsActual $0.16 against epsEstimated $1.94, a 91.8% miss. Alibaba's release prints all four figures in one bullet - RMB3.71 and RMB0.46 statutory, RMB8.52 and RMB1.07 non-GAAP - and footnote 5 states each ADS represents eight ordinary shares. Divide either pair and you recover 8.07x and 7.96x. In the same unit the comparison is $1.26 delivered against a $1.85 bar: -31.9%, or 2.9x smaller than the screen. Revenue BEAT on the same day, $39.64B against $38.63B. - WHERE THE PROFIT WENT: group adjusted EBITA fell RMB11,515M. AI Labs and Applications accounts for RMB10,637M of that (92.4%) as its loss went RMB3,224M to RMB13,861M - 4.2x its own revenue. All others contributed RMB4,030M (35.0%) including a RMB4.5bn goodwill writedown. Alibaba E-commerce Group, which CONTAINS the quick-commerce subsidy war everyone blamed, moved RMB239M - 2.1%. AI Cloud OFFSET RMB3,209M. Excluding AI Labs, group adjusted EBITA went RMB42.1bn to RMB41.2bn: -2.1%, not -29.6%. - WHAT THE FORECAST REQUIRES: annualise this quarter's non-GAAP income and Alibaba earns $5.06 per ADS. Take the whole AI Labs loss to zero and tax the difference at 20% and it earns $7.76. The Street's fiscal 2028 row is $9.18 from 18 forecasts - 1.18x the full-breakeven figure. Our cases are $5.60 at 11.0x, $7.00 at 14.5x and the Street's own $9.18 at 17.0x, weighted 30/45/25 for a fair value of $103.16. Three houses acted on the print, all three MAINTAINED, two RAISED targets. What to watch: UP: AI Cloud adjusted EBITA grew 133% to RMB5.6bn on revenue up 44.9%, AliExpress turned profitable, and net cash plus unconsolidated stakes are worth $25.09 per ADS - 21% of the share price. DOWN: capex of RMB67.7bn (+75.0%) is 4.5x the RMB15.0bn of incremental cloud revenue it bought, free cash flow was an OUTFLOW of RMB44.7bn, and depreciation - inside the adjusted number - is up 71.4% y/y. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.