Alibaba to adjust e-commerce strategy to enhance merchant terms

Alibaba will refine its China e-commerce strategy by improving merchant terms and introducing new technology service charges to boost monetisation, according to S&P Global Ratings.

The move comes as Alibaba reports positive traction in Gross Merchandise Value (GMV), with two consecutive quarters of year-over-year growth. However, this growth has not translated into increased revenue or EBITDA, which have remained flat.

Recent changes, including a relaxed refund policy for select products, are expected to strengthen Alibaba's relationships with merchants. 

“Whilst such an update will not appeal to consumers who aim for easy refunds, the company’s actual transacted GMV may not be materially affected,” S&P said. “The company should be able to retain more merchants whilst also increasing its monetization of such merchants, via the new technology service charges.”

S&P noted that Alibaba is strategically repositioning itself to compete more effectively against rivals focused on low pricing.

Additionally, it has revised its revenue growth forecast for Taobao and Tmall Group (TTG) for the fiscal year ending 31 March 2025, to 0.2%, down from 6%. EBITA is projected to rise by 1%-2%. The revision reflects a lower take rate on Taobao and reduced direct sales revenue. S&P expects more growth in fiscal 2026 as Alibaba increases monetisation.

Meanwhile, Alibaba’s international e-commerce and logistics operations are anticipated to be loss-making for the next 24 months due to heavy investment. Profitability is expected to improve in other areas, whilst the cloud segment will remain cash flow negative for one to two years due to increased AI investments.

S&P also forecasts Alibaba’s adjusted net cash to fall to about RMB230b in fiscal 2025 from RMB269b last year. 

Despite strong free operating cash flows, discretionary cash flow may turn slightly negative due to share repurchases and investments. The outlook on Alibaba’s 'A+' rating remains stable.