The author | Eastland
The head art | Visual China
On February 24, 2022, Alibaba (NYSE: BABA; HK: 09988) announced its unaudited results for the fourth quarter of 2021 (Q3 of fiscal 2022). In 2021, Alibaba's revenue was 836.4 billion yuan, an increase of 29.8% year-on-year. By the end of 2021, the number of annual active users worldwide (at least one transaction during the year) reached 1.28 billion, a net increase of 43 million from the end of September.
A $25.1 billion impairment of goodwill related to digital media and entertainment reduced net profit by 75 percent, and adjusted EBITA also fell 27 percent to $44.8 billion.
At the closing price on February 25, 2022, Ali's market capitalization is $292.6 billion, which is only 18.6% of Amazon's (NASDAQ:AMZN). Although Ali's revenue growth rate has slowed down but is still much higher than Amazon, the price-earnings ratio is more than ten times lower than Amazon's, and its market value is less than one-fifth of Amazon's.
Revenue growth under low inflation
In 2015 (the calendar year, the same below), Alibaba's revenue was 94.4 billion yuan; in 2016, it broke through to 143.9 billion yuan, an increase of 52.4% year-on-year; and in 2017, its revenue was 226.9 billion yuan, an increase of 57.7% year-on-year.
In the following years, revenue growth began to decline. In 2021, Alibaba's revenue was 836.4 billion yuan, an increase of 29.8% year-on-year.
From 2015 to 2021, Ali's revenue increased by an average of 43.9%. In the same period, the average annual growth rate of Amazon's revenue was 38.1%.
Alibaba's revenue is divided into four parts: commercial (consolidated With Retail Performance of Gaoxin since October 2020), Cloud Business (from April 1, 2021, DingTalk's performance will be reclassified from "Innovative Business" to "Cloud Business"), Digital Entertainment and Innovative Business. Amazon's revenue is divided into three parts: North America, overseas, and cloud business.
Alibaba Business (formerly known as "Core Business") and Amazon Business (revenue other than cloud business) account for 90% of each company's total revenue.
Alibaba's business growth rate is significantly higher than Amazon's. From 2015 to 2021, the average annual growth rate of the two was 42.6% and 26.6%, respectively.
In 2021, Alibaba Commerce increased by 31.3% year-on-year, and Amazon (Commercial) grew by 19.6%.
In 2021, China's CPI index rose by less than 1%, and the US CPI index soared to 7%. Although the comparison of the Sino-US CPI index is not rigorous due to different calibers, it can be concluded that the price increase in consumer goods in the United States is much greater than that in China.
In the context of low inflation, Ali's business growth rate is 11.7 percentage points higher than Amazon's. If "Ali is not as good as expected", the rationality of expectations is debatable.
Revenue diversification
Alibaba has made a lot of progress in revenue diversification, especially in the cloud business. However, the e-commerce business is too strong, and Ali is unwilling to burn money to quickly increase the revenue of new businesses without restraint, so the revenue pattern has hardly changed over the years.
1) Natural annual revenue structure
In 2021, Alibaba's commercial revenue reached 726.7 billion yuan; cloud business, digital entertainment, and innovation revenue were 72.4 billion, 32.3 billion, and 5.1 billion, respectively; and the revenue of the three businesses increased by 30.2%, 6.5%, and 12% respectively year-on-year.
The cloud business is Alibaba's second largest growth sector after business, and the gap with Amazon Cloud (AWS) is narrowing. Alibaba Cloud's revenue was 9.5% of Amazon's AWS in 2017 and increased to 18% in 2021.
Digital entertainment revenue growth continues to decline: 16.4% in 2019; revenue of 30.3 billion yuan in 2020, an increase of 10% year-on-year; revenue of 32.3 billion yuan in 2021, an increase of 6.5% year-on-year.
Innovation business growth fluctuates: 5% year-on-year growth in 2019, 3.2% decline in 2020, and 12% growth in 2021. Due to the small base, the impact of innovative business on Alibaba's revenue growth can be ignored.
In 2020, Alibaba Commerce's contribution to total revenue growth was as high as 90%, higher than its share of revenue of 86.9%.
2) Ali is no longer yesterday's Ali
Since the fourth quarter of 2021, Alibaba has fine-tuned the performance disclosure structure, mainly refining Alibaba's business:
1) China business, covering Taobao, Tmall, Taote, Taocaicai, Tmall Supermarket, Tmall International, Hema, Ali Health, Gaoxin Retail, and wholesale business including 1688.com;
2) International business (lazada, AliExpress, Trendyol, Daraz and Alibaba.com);
3) Local living services, covering location-based services, including Ele.me, AutoNavi, Fliggy and Taoxianda;
4) Cainiao, including domestic and international one-stop logistics services and supply management solutions.
In Q4 2021 (natural quarter), China's commercial revenue was 172.2 billion yuan, accounting for 80.5% of Alibaba's commercial revenue and 71% of Alibaba's total revenue; international commercial revenue was 16.45 billion yuan, accounting for 7.7% of Alibaba's commercial revenue; local living revenue was 12.14 billion, accounting for 5.7% of Alibaba's commercial revenue; and Cainiao's revenue was 13.08 billion, accounting for 6.1% of Alibaba's commercial revenue.
The main body of Chinese commerce, "China Retail Commerce", is divided into two categories: "management of households" and "direct operation and others". The former is to provide performance-based marketing services, including P4P marketing services, display marketing services and Taobao customer services and commissions (rates between 0.3% and 5%); the latter mainly comes from Gaoxin Retail, Hema and Tmall supermarkets.
In Q4 2021, customer management revenue exceeded 100 billion yuan, accounting for 59.6% of China's retail business revenue; direct sales and other revenue was 67.9 billion yuan, accounting for 40.4% of China's retail business revenue; and the "four or six open" pattern ran through the entire 2021.
The core of the core, China Retail, 40% of the revenue comes from direct operation. Many people have not yet realized that Ali is no longer yesterday's Ali!
In the customer management revenue, the ratio between online marketing and commissions is about 4:1. In 2021, the total revenue of customer management was 316.4 billion, of which the online marketing revenue exceeded 250 billion, about 30% of Alibaba's total revenue, down 10 percentage points from 2018.
Segment profit
1) Ali Commercial EBITA
Alibaba Commercial EBITA has a significant seasonality: the amount peak appeared in the fourth quarter, and the profit margin peak appeared in the second quarter.
In 2020, for example, EBITA peaked at 66.6 billion in the fourth quarter, and 38.4% of the peak EBITA margin appeared in the second quarter.
Entering 2021, EBITA's profit margin is "uniformly" "shortened". In the fourth quarter of 2021, EBITA amounted to 49.8 billion yuan and the profit margin was 23.3%. Compared with Q4 2020, EBITA decreased by 14.16 billion and profit margin decreased by 11 percentage points.
The decline in Ali Commercial EBITA's profit margin is the result of the combination of the market environment and the company's strategy adjustment:
First, the online GMV maintained growth and the profit margin declined, indicating that the realization rate was declining. Convenient transactions and reduced transaction costs are the general direction of Internet development;
Second, the profit margin of the self-operated business of "earning the difference" is much lower than that of the platform business of "earning commissions", and now the self-operated income of Alibaba Business has reached 40%;
2) Dismantle Ali Commercial EBITA
The core of Alibaba Business is "China Business - Customer Management", marketing and commission account for 80% and 20% respectively, these two types of business are characterized by strong fixed cost rigidity, variable cost/marginal cost is very low (this is the characteristic of all Internet services).
GMV continues to grow (although at a rate of less than 10%), and the reason for the decline in profits can only be lower rates.
International business, local life, and rookie EBITA losses all increased, with a total loss of 12.3 billion, a loss of 2.2 billion more than Q4 2020. However, the loss ratio of three businesses has risen and fallen - the loss rate of international business has increased by 7 percentage points to 17.7%; the loss rate of local life has dropped by 4 percentage points to as high as 41%; Cainiao has performed very well, with a loss of only 0.7%, and a turnaround is just around the corner.
Other businesses other than Chinese businesses, with losses within control and good momentum, have become an important engine to drive revenue growth:
By the end of 2021, Alibaba International's business active users reached 300 million, a net increase of 16 million in a single quarter, a quarterly order volume increased by 25%, and Cainiao International handled an average of 5 million parcels per day. In the fourth quarter, Lazada and Trendyol's revenue increased by 52% and 49% respectively;
There were 370 million active users of local life services, a net increase of 17 million in a single quarter, and quarterly order volume increased by 22% year-on-year;
Before offsetting cross-segment transactions, Cainiao revenue rose 23% to $19.6 billion, with 67% of quarterly orders coming from external customers.
3) Cloud business, entertainment, innovation business EBITA
Alibaba Cloud's business completely bid farewell to losses and maintained a revenue growth rate of 30%, with full-year revenue and EBITA of 72.4 billion yuan and 1.18 billion yuan in 2021, respectively, with a profit margin of 1.6%. In 2020, EBITA lost 1.06 billion yuan, with a loss rate of 1.9%.
The performance of the digital media and entertainment segment has shown significant seasonal fluctuations, and overall losses are no longer "shocking". In Q2 2019, EBITA lost 2.3 billion yuan with a loss rate of 36.3%; in Q2 2021, the loss dropped to 420 million, with a loss rate of 5.2%,; and in Q4, 2021, it lost 1.37 billion yuan with a loss rate of 16.9%.
However, the impairment of goodwill related to the media/entertainment segment reached 25.1 billion yuan (non-recurring profit and loss), which had a great impact on Alibaba's overall performance.
After the loss of digital entertainment narrowed, "innovation and others" (including Tmall Genie, Dharma Academy and other businesses) became the most loss-making sectors. In Q1 2021, EBITA lost 3.2 billion yuan with a loss rate of 260%; Q3 lost 2.9 billion yuan with a loss rate of 201%; and Q4 lost 1.6 billion yuan with a loss rate of 156%.
In Q4 2021, the EITA loss after the profit and loss of the three businesses of cloud business, entertainment and innovation accounted for 5.7% of Alibaba Commercial's EBITA profit. Since 2019, there have been 6 of the 11 quarters (excluding the exceptional 20-year Q1), which is less than 10%.
Tough villages, fight stupid battles
In 2017 (calendar year), Ali EBITA reached 95.3 billion yuan with a profit margin of 42%; in 2019, EBITA was 138.1 billion yuan with a profit margin of 28.2%; in 2021, EBITA was 137.2 billion, with a profit margin of 16.4%.
No industry or company can "lie back and make money" forever. On the whole, the "comfortable good days" of Chinese Internet companies have passed, and it is necessary to serve users and dig deep into the moat to prosper for a long time, in the words of Zeng Guofan, that is, to "harden the village and fight a stupid battle".
The development of e-commerce to today is no longer a simple traffic realization. It's like opening a restaurant in a prime location, the door face and the font size are very attractive, the guests are endless, and the flow of traffic for a time brings rolling money. But for restaurants to open well and do well for a long time, they still have to rely on satisfactory service.
E-commerce open platform to do big, do a long time, must be for consumers and sellers of humanity to fight - do not exaggerate the publicity of business is less, do not let the sale of fake and shoddy to earn less, do a good job of pre-sale / sale / after-sales service costs will increase, supervise, motivate thousands of sellers to rebel against their own humanity, this thing Ali has done for twenty years. Self-operated e-commerce is equivalent to saying "I can't manage you, but I can manage myself."
Relying on the e-commerce platform for live streaming, quality and service are guaranteed (from payment to logistics, from after-sales service to no reason to return). The pure traffic platform does not have the ability to supervise, manage and serve the system for billion-level SKUs and tens of millions of sellers.
Going back more than ten or twenty years, there may be an opportunity to evolve this ability, today's users have been "spoiled" by mature e-commerce, and the extensive service of pure traffic platforms is difficult to convince the public.
The rise of live streaming on e-commerce platforms is temporary, and e-commerce attaches importance to direct, pure traffic platforms can give discounts. In the medium and long term, this "emerging model" is good for e-commerce platforms.
*The above analysis is for reference only and does not constitute any investment advice