Stopping the spin-off of Alibaba Cloud and suspending the listing of Hema is suspended, why does Ali want to "turn everything to zero"?

Interface News Reporter | Cheng Lu

Interface News Editor |

Before the U.S. stock market on November 16, Alibaba released its financial results for the quarter ended September 30. According to the financial report, Alibaba's group revenue from July to September was 224.79 billion yuan, a year-on-year increase of 9%, adjusted EBITA (earnings before interest and taxes) for the quarter increased by 18% year-on-year, and the net profit attributable to ordinary shareholders was 27.706 billion yuan.

Along with the announcement of the financial report, there were two rather abrupt "drawdowns" - one is that the complete spin-off of Cloud Intelligence Group will not be pushed forward due to multiple uncertainties, and the other is that the initial public offering plan of Hema Xiansheng has been suspended.

"No matter how successful the business model was in the past, we must turn the page back and awaken the mindset to start a new business," said Yongming Wu, the new CEO of Alibaba Group, on the earnings call. Alibaba is embarking on a new entrepreneurial journey and is ready to go all-in on technological change. ”

The spin-off and listing plan changed, and Wu Yongming redrew the Ali battle map

The word "change" has been used for almost the entire year of Alibaba this year, and more than ever before.

In March, shortly after Jack Ma returned to China, Alibaba launched the largest organizational change in the history of "1+6+N", and all qualified business groups and companies will have the possibility of independent financing and listing. A list of promising businesses was quickly identified, with Cainiao, Alibaba Cloud and Hema coming out on top. At that time, Ali was full of hope for the future of various businesses, believing that the market was the best litmus test.

In September, Ali's personnel changes were extremely intensive and violent, and power was further concentrated in the hands of Alibaba's "Eighteen Arhats" - Tsai Chongxin took over as chairman of Alibaba Group, Wu Yongming as CEO, Peng Lei, Tong Wenhong, Wang Jian and other elders returned, and Daniel Zhang, who had faded out of the center of power, retreated again and again until he left Alibaba.

There is no doubt that Jack Ma is indispensable behind these major decisions. However, Alibaba's spin-off and listing plan is not all smooth sailing, as evidenced by the cessation of the spin-off of Alibaba Cloud and the suspension of the listing of Hema as evidenced by the market.

After 24 years of development, Alibaba has grown into a giant company that spans e-commerce, cloud computing, life services, culture and entertainment, and continues to carry out innovative businesses.

Under the challenges, how should Alibaba choose its strategic priorities?

After taking up the role of CEO of the new group, Wu Yongming has drawn a new strategic map for Alibaba, officially announcing the first batch of strategic innovation-level businesses: 1688, Xianyu, DingTalk, and Quark. These businesses will be operated as independent subsidiaries in terms of business, and the business will break the previous positioning restrictions within the group, and Alibaba will continue to invest in a cycle of 3-5 years.

In the face of various uncertainties in the future, Alibaba plans to establish a governance mechanism and incentive system with highly flexible and rapid decision-making, and each business line will develop as an independent business unit.

Alibaba will sort out the strategic priorities of existing businesses and define core and non-core businesses. For the core business, we will maintain long-term focus and high-intensity investment to ensure that the product always keeps up with the needs of users to iterate and evolve, and maintain long-term vitality and competitiveness, and for the non-core business, we will realize the asset value as soon as possible through a variety of capitalization methods.

Alibaba will also play a strategic incubation function and make resolute strategic investments for the future. Wu Yongming emphasized that businesses that meet user needs and AI-driven change trends will be the first priority, and for future-oriented innovative products, we will adhere to the long-term principle of resolute investment, and take a three-year evaluation and inspection cycle to cultivate new businesses and new momentum for Alibaba for the future.

"Priority" was the keyword that Wu Yongming mentioned the most that night. In terms of the development strategy and priorities of each business group, Taobao and Tmall will further clarify "user first" as a business priority in the next three years, and will implement an in-app multi-level market strategy and price power strategy, and user purchase frequency will be prioritized over GMV as the most critical target.

The Cloud Intelligence Group will implement an AI-driven, public cloud-first strategy and increase technology investment in AI-related software and hardware. Through "cloud + AI", we will support the intelligent transformation of all walks of life and create more incremental opportunities.

Jack Ma reduced his holdings, and Alibaba's stock price plummeted

Just before the release of the earnings report, the news that Ma Yun reduced his holdings of Ali shares and cashed out attracted widespread attention.

According to the Form 144 disclosed on the official website of the Securities and Exchange Commission (SEC), the Jack Ma family trust JC Properties Limited (British Virgin Islands company) and JSP Investment Limited (British Virgin Islands company) plan to reduce their holdings of Alibaba founder shares by 5 million shares on November 21.

Based on Alibaba Group's closing price of $87.07 on the New York Stock Exchange on Wednesday, the total amount involved in the reduction was $870.7 million. BofA Securities acted as the broker for the reduction of the Jack Ma family trust.

In recent years, Alibaba no longer discloses Jack Ma's shareholding, and the public data that can be verified is that on July 2, 2020, Jack Ma's shareholding has dropped to 4.8%, less than 5%, but it is still Alibaba's largest individual shareholder. In fact, since 2016, part of the funds that Jack Ma cashes out every year has been invested in his charitable foundation, entering projects such as environmental protection, medical health, education development and public charity.

However, at the point in time when the spin-off plan changed, the reduction of holdings still had a significant impact on the stock price. As of press time, Alibaba's U.S. stock fell nearly 10% pre-market, falling below $80 per share.

The growth rate of the cloud business is poor, and the growth of the global business is strong

In terms of financial reports, Taotian Group's revenue in this quarter was 97.654 billion yuan, an increase of 4% over the same period last year. The core cash flow business, Customer Management Revenue (CMR) and Adjusted EBITA, both increased 3% year-over-year. According to the financial report, Taotian Group's core performance indicators continued to grow, the scale of users and merchants expanded simultaneously, and 88VIP members increased by double digits year-on-year, with a scale of more than 30 million.

In May this year, Dai Shan, CEO of Taotian Group, announced the three strategies of "user first, ecological prosperity, and technology-driven", which is intended to expand Taobao's advantages on the user side and supply side, and amplify the multiplier effect with scientific and technological capabilities represented by AI. The specific starting point of the strategy is the five major strategies set at the beginning of the year, namely live streaming, private domain, content, local retail and price power. In the quarter, Taotian also disclosed the specific results of various strategies.

In terms of price power, Dai Shan said on the analyst call that the overall purchase conversion rate and repurchase rate of users have achieved relatively satisfactory results, and the investment in the content ecology has also been exchanged for data growth on the user side.

Just last Saturday, the first Double 11 of Taotian Group, which was spun off from Alibaba, came to an end. Although it did not announce GMV, it said that various refined operation data, including user scale, order number, merchant scale, etc., have increased in an all-round way.

The revenue of the cloud intelligence group, which stopped the spin-off, was 27.648 billion yuan, with a year-on-year growth rate of only 2%. In the financial report, Alibaba explained the reason for not spinning off the cloud business, mainly due to the recent expansion of restrictions on the export of advanced computing chips by the United States, which has brought uncertainty to the prospects of the cloud intelligence group.

In this regard, Tsai Chongxin also made a further explanation on the call, "At that time, I planned to do a complete split, mainly to reflect the value of cloud business through financial engineering. At that time, the cloud business was in a predictable environment, and we were able to provide investors with a transparent picture of the growth of the business and the enhancement of shareholder value. But now we are no longer through financial engineering, but hope to show the value of the cloud through investment, especially in the new situation that AI-driven cloud computing business needs more investment support. ”

Compared with the poor growth rate of the cloud business, the growth of the global business is stronger, and the revenue of Alibaba International Digital Business Group was 24.511 billion yuan, an increase of 53% year-on-year. Wu Yongming pointed out that the overall user penetration rate of international digital business groups is relatively high in only a few regional markets such as Southeast Asia and Turkey, and there is still huge room for growth in the user penetration rate in most overseas markets.

Jiang Fan, CEO of Ali International Digital Business Group, specifically mentioned the Choice business (AliExpress's full custody model), saying that its order proportion has increased rapidly, and the proportion will contribute more than 50% of AliExpress's volume in the future. "However, the Choice model is still in the investment period, the profit is negative, and business growth will still be the first priority for a period of time in the future. As our business grows, we also optimize our bottom line. ”

In addition to the above businesses, Cainiao Group's revenue was 22.823 billion yuan, up 25% year-on-year, and adjusted EBITA achieved triple-digit year-on-year growth, with enhanced profitability.

Thanks to the strong user demand brought about by the recovery of the offline economy, the revenue of Local Life Group was 15.564 billion yuan, a year-on-year increase of 16%. Ele.me's operating loss continued to narrow year-on-year in the quarter, which simultaneously drove the adjusted EBITA (operating profit and loss) of Local Life Group to 2.564 billion yuan.

The revenue of Dawen Entertainment Group was 5.779 billion yuan, a year-on-year increase of 11%. Innovative businesses such as Quark and Xianyu have also seen significant growth in the number of daily active users (DAU).