Fitch affirms Alibaba at ’A’ with stable outlook

Investing.com -- Fitch Ratings has affirmed Alibaba Group Holding Limited’s Long-Term Foreign- and Local-Currency Issuer Default Ratings and senior unsecured rating at ’A’ with a Stable outlook.

The ratings agency noted that Alibaba’s ratings are constrained by the Chinese sovereign rating (A/Stable), despite the company having a standalone credit profile assessed at ’a+’.

The affirmation reflects expectations that Alibaba will maintain a strong business profile alongside a robust financial position. The company’s two strategic segments - consumption, and AI and cloud services - are expected to expand in addressable markets and support solid long-term profit growth.

Fitch acknowledged that intense competition in quick commerce will pressure near-term profitability, but expects the current price war to ease over the next six to 12 months. While elevated growth capital expenditure for AI and cloud infrastructure will compress free cash flow margins, Alibaba should maintain its gross leverage with sizeable net cash.

The company’s market leadership in China’s e-commerce and cloud service markets underpins its ratings. Alibaba China E-commerce Group continues to lead in gross merchandise value share in retail e-commerce, with Taobao App serving as the primary platform for merchants.

Fitch expects Alibaba’s recent strategic reorganization and the launch of Taobao Instant Commerce to help defend its core market share and gain meaningful share in China’s quick-commerce segment. Management is targeting approximately CNY1 trillion in incremental gross merchandise value over the next three years.

The quick-commerce revenue rose by 12% year-over-year in the first quarter of FY26, with monthly active consumers approaching 300 million in August 2025. This contributed to a 25% year-over-year increase in active consumers on the Taobao app in the first three weeks of August.

Fitch projects Alibaba’s EBITDA to decrease by about 13% year-over-year in FY26 due to increased promotions and investments in quick commerce. However, price competition is expected to peak in the third quarter of 2025 and begin easing into 2026. The agency forecasts substantial EBITDA recovery from FY27, with operating cash generation returning to above CNY180 billion.

Capital expenditure will remain elevated, with CNY380 billion earmarked over the next three years for AI and cloud infrastructure. Fitch projects high-teen compound annual growth rate in Alibaba’s cloud revenue, with the latest run-rate at 26% year-over-year growth in the first quarter of FY26.

Alibaba International Digital Commerce Group’s profitability is expected to continue improving and remain on track to break even. In the first quarter of FY26, revenue increased 19% year-over-year and adjusted EBITA loss narrowed to CNY59 million from CNY3.7 billion a year earlier.

Fitch expects Alibaba’s EBITDA gross leverage to remain modest at 1.3x-1.6x in FY26-FY29, supported by a large net cash position. Share buybacks fell to about $1.1 billion in the first half of FY26 from $9.9 billion in the same period of FY25. As of end-September 2025, Alibaba had $19.1 billion remaining in its repurchase authorization, effective through March 2027.

The agency noted that Alibaba’s variable interest entity structure is a credit weakness, as the company does not own its VIEs but controls them via contractual relationships.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.