Scraping carrion and exposing white bones, how is Ali doing after undergoing "major surgery".

After staging a large-scale hexagram change scene last quarter, Ali took the lead this time directly and opened the announcement period of the Chinese financial report in the fourth quarter of 2023. Don't talk nonsense, go straight to dry goods:

1) Taotian: "Correction and repayment of debts"

As a product that will be repeatedly observed by the market magnifying glass every time, Taotian's customer management revenue was 92.1 billion, a year-on-year increase of 0.5%, and the final result was slightly equal to the market expectations that had been fully depressed by the company.

Taotian's unpaid GMV is a "healthy growth" with fast order growth and negative ASP growth, and overall positive. After the current DAU first strategy, I am afraid that in the future, the order growth rate will be faster than the GMV growth rate, the GMV growth rate will be higher than the CMR growth rate, and the CMR will grow from zero to single digits.

2) Small animals: After drawing the key points of collection and release, the period of squeezing profits is basically over

After the new management has sorted out which businesses to invest, which businesses to collect, and which businesses to sell, it has now begun to be reflected in the various small animals:

1) Ali International of "Sea of Stars": Although the international group dominated by AliExpress, Lazada and Trendyol increased from a year-on-year base last year, it still achieved a growth of 44%. However, compared with the previous high growth and at the same time, the loss rate of the international group soared sharply this quarter, from the original almost breakeven to a loss of 3 billion+.

Obviously, in the face of a track that no longer needs to be involuted in China and has been proven by the junior TEMU to have scarce growth space, Ali will also make efforts. 2024 is a turbulent year for going to sea, and when Choice orders are rapidly surpassing 50% of AliExpress's total orders, Dolphin Jun is not harsh on the current high investment in the front, and is more concerned about whether AliExpress can deliver higher growth after three or four quarters, and whether the loss rate can narrow as scheduled after UE runs through.

2) Cainiao who enjoys the east wind of going to sea: Cainiao achieved revenue of 28.5 billion yuan on top of last year's high base, a year-on-year increase of 24%, almost no deceleration, and the profit during the period was not stretched, and the adjusted EBITA was close to 1 billion, which was the only business that kept the bottom line at both ends in this quarter.

3) Revenue "purification" of Alibaba Cloud: revenue of 28.1 billion, a positive growth of nearly 3% year-on-year, is not disappointing, but the second position in revenue has been taken away by international groups. However, due to the increase in revenue and the active elimination of low-margin on-premise deployment and project-based businesses, the revenue slowed down while the profit release was very obvious, and the profit margin (Adj EBITA) in the quarter has reached 8%, which has become the business that has contributed the most to the group's profit outside of Taotian.

At present, low demand + difficulty in going to sea, if it is difficult to break through in government and enterprise affairs, it may still be difficult for Alibaba Cloud's growth to improve in 2024.

4) All the rest of the businesses, whether it is pan-entertainment, which has been unable to support the wall, or various offline asset-heavy businesses, after being sorted out as non-core businesses, the performance of this quarter is too weak to say anything.

5) From the perspective of overall revenue, Taotian's traffic tendency to Taobao and small and medium-sized businesses, Taotian's revenue and profits are barely passing within low expectations, and other businesses, after reorganizing the focus and re-entering the investment period, the squeezing profit period has basically ended, and the large-scale investment is mainly in the international business, so that the profits that were easy to exceed expectations before have also entered a flat state in this quarter.

In the end, in the 2023 e-commerce peak season, Ali, as the leader of the Chinese general lottery, only paid the expected mediocre income and mediocre profits.

Dolphin Investment Research Views:

After Alibaba Cloud was not spun off, overseas and domestic online retail restarted and put into ..... large-scale hexagram change scene, Ali once smashed from 80 or 90 yuan to less than 70 US dollars. Some time ago, Ali lowered its performance expectations downward, emphasizing the re-entry of the investment cycle, which can be described as a lot of accidents.

Judging from the actual performance in the fourth quarter, although it is unremarkable, there is a big logic behind it to judge the value of Ali in this cycle. Correspondingly, through this financial report, Dolphin Jun has two key cognitions for Ali in 2024:

1). Remove the rotten flesh and scrape the bones of Ali

a. In the process of recalling users' minds with down-to-earth product prices on the supply side of Taotian's business through the traffic tilt of small and medium-sized merchants, the growth trend of Ali's lifeline business is likely to increase user DAU, order volume > GMV growth> Taotian customer management revenue growth, and finally even if DAU continues to return, the customer management growth revenue reflected in the performance may be weak.

b. The cloud business is a growth business that does not grow in the context of weak demand, excluding the gross profit garbage revenue and raising the gross profit AI income.

c. International e-commerce (AIDC) is a rare scarce growth asset, but in 2024, it will enter the cultivation period, and high growth will correspond to high investment, especially in the first half of the year, front-loading investment may lead to the collapse of profits, which is logically an upward option business.

d. Other non-strategic core businesses in the body, such as offline retail assets such as Hema Mart, Yintai and Sun Art, as well as strategic equity investments in the non-retail track, such as Xpeng, Kuaigou, Weibo, Focus and so on, may be waiting for asset liquidation and sell-off.

In this context, Dolphin Jun's core judgment on Ali is summarized as the dilemma grinds the bottom and the probability of reversal is small.

2) So how do you view the investment value of Ali during the period of bone scraping and healing?

Dolphin Jun thinks that the logic has become simple and clear:

a) First of all, from the perspective of the group, Alibaba is still a cash cow company with 50 billion US dollars + net cash, and is still generating 25 billion US dollars (around 200 billion yuan) of positive operating cash flow every year;

b) On this basis, if it is believed that its fundamental pressure is still high, and it is difficult to say the bottom of the PE of 7 times the core Taotian profit, perhaps it is more certain to use the repurchase income to calculate the bottom of Ali:

According to Alibaba's new $25 billion (as of March 2027), the repurchase of ammunition will be expanded to $35.3 billion, combined with the previous repurchase balance period mentioned at the end of the previous quarter until March 2025.

Then by March 2025, that is, a year later, Ali will repurchase at least 10.3 billion, which corresponds to a repurchase rate of 5.2% according to the current market value, and the current short-term risk-free rate of return on U.S. bonds is basically 5.3%.

In the context of the downward risk rate of return, corresponding to an appropriate return premium, Dolphin Jun believes that when Ali's repo yield exceeds 6% and is on par with 7%, it will correspond to a very obvious certainty of the bottom of the stock price.

In other words, even if Ali is still at the bottom of the performance grinding on the operating table in 2024, with the support of buybacks, the bottom of its valuation is actually very clear.

Here's the detailed analysis:

1. Alibaba's new financial report

Starting in June 2023, Ali will greatly adjust the caliber of financial report disclosure, in order to facilitate everyone's understanding, Dolphin Jun will first take you to recall the caliber of Ali's new financial report:

1) Taotian Group: Taobao, Tmall, Tmall supermarket + import direct sales, domestic wholesale;

2) International groups: cross-border retail AliExpress, cross-border wholesale international station, overseas local retail Lazada, Trendyol, etc.;

3) Local life: Ele.me and Gaode

4) Cainiao Group: Same as before, but now the revenue calculation method treats other businesses within Alibaba Group as customers, and the income generated by them is included in the income of Cainiao Company;

5) Intelligent Cloud Group: Alibaba Cloud, DingTalk was divested to the rest of the business in the September 23 quarter;

6) Pan-Entertainment Group: Youku and Alibaba Pictures;

7) All the rest: Sun Art, Freshippo, Ali Health, Yintai (these three are self-operated new retail with offline formats, originally in the domestic business business), Lingxi Interactive, UC, Quark (formerly in the pan-entertainment business), Fliggy (in the original life business), and DingTalk (formerly in the cloud business).

Dolphin Jun put another previous calculation to facilitate everyone to make a before and after comparison:

Second, scrape the bones to heal the sky

Dolphin Jun said in "Ali: Big Fall, Reduction, Hexagram Change, Money? I Think So" that behind Ali's change of hexagram is to get rid of short-term performance hijacking and slowly rebuild Taobao's core competitiveness from the root.

The meaning behind this sentence is that in the short term, don't expect Taotian business to look good on the report side. And this quarter is actually a confirmation of this judgment.

Alibaba's pillar, Taotian's domestic retail customer management revenue (CMR), was 92.1 billion yuan in the quarter, a year-on-year increase of 0.5%, which barely fell on the average of the downward adjustment expectations of the overseas and domestic banks seen by Dolphin Jun, and barely passed the line.

Behind the almost zero growth of CMR is the GMV growth of Taotian, which Ali qualitates as "healthy": the growth of transaction users is good, and the growth of order volume is also good (the order volume of Taotian on Double 11 can only be told to achieve double digits), but the average price of a single unit has dropped too much. This method of description also reflects the strategic adjustment of Taotian in the current surgery:

In the process of re-establishing "watching Taobao when you have something to do, and seeing what you like to buy an order", it is more important to use DAU and the frequency of orders than to use large customer unit price products to make high GMV. On the supply side, we need to re-absorb small and medium-sized businesses (double-digit business growth).

From this point of view, Taotian's growth has indeed become healthy. It's just that it's only at the operational level, not at the revenue and profit level, or even at the GMV level. Moreover, in the process of returning to Taobao merchants in the flow direction, Taobao merchants do not pay commissions, and under the same GMV, Taotian's realization rate becomes lower. The corresponding business performance is that the order volume is greater than the GMV growth rate, the GMV growth rate is greater than the CMR growth rate, and the revenue growth rate is the slowest in the end.

I am afraid that this process will need to last for at least a year, and in the next few quarters of 2024, Taotian may be like this, counting on Taotian's revenue and profit to exceed expectations, and there is little hope.

3. Don't count on online self-operated retail in the short term

After the previous adjustment of the structure and financial report, a number of asset-heavy offline retail businesses such as Freshippo, Intime Department Store and Sun Art Retail, which were originally acquired or cultivated under Alibaba's "new retail" strategy, were all kicked out of the self-operated retail sector under Taotian Group, and the self-operated retail only retained core online self-operated businesses such as Tmall Supermarket and Tmall Global.

This quarter, the growth rate of online retail sales directly operated by Tmall Supermarket and Tmall Global is only 2%, and this trend may be zero or negative growth in the future. And the logic behind this is that the new management is obviously conservative about the self-operated heavy asset model, which can be seen from the revision of Tmall APP, and now on Tmall APP, Maochao is still on the home page, but Tmall Global can no longer find it.

Moreover, this quarter, Ali also made an intangible asset impairment of 2.8 billion yuan on a cross-border import e-commerce platform, which is estimated to be the NetEase Koala acquired before. It is obvious that although Ali has entered a new investment cycle, it is investing in asset-light businesses, and self-operated asset-heavy businesses will need to reduce investment and drawdowns.

Taotian's third business 1688.com, which is also a "small fresh" business circled by the new management, has continued to grow upward after repositioning and starting to slowly do C-end business. This quarter, 1688's revenue accelerated to 23%, which is very good.

Fourth, overseas to show their strengths, investment first

For the current Ali, compared with the domestic involution, overseas is the real sea of stars. Therefore, after three consecutive quarters of high growth in Ali's international business, Ali seems to be about to invest in the sea of stars.

In terms of growth, the international group is still the standout existence of Alibaba Group. The growth of international business began in the same period last year, and after the base became higher, the international group still achieved a high growth rate of 44%. Among them, the international retail sales where AliExpress is located grew by 56% year-on-year, which can be said to be very exaggerated.

Among them, the growth rate of AliExpress business orders is as high as 60%, and in the AliExpress business, AliExpress Choice (full custody & semi-custody model) has achieved 50% in January this year, obviously the previous 50% target is too low-key, and the back of more than 50% is estimated to be a high probability event.

Turkish e-commerce Trendyol is also good, continuing to grow at double-digit orders, mainly due to the fact that Lazada, a local e-commerce company in Southeast Asia, is still being optimized.

Alibaba's oldest business, the export wholesale Alibaba.com, grew mediocre, with a year-on-year increase of 8% in the quarter. In Dolphin's view, it is difficult for this business to grow new sprouts without a major model transformation.

International Group's eye-catching operating loss in the quarter excluding equity incentive expenses and amortization expenses (Adj. EBITA) soared to nearly 3.2 billion, with a loss rate of 11%, which can be said to be a "huge loss" compared to the previous state of dangling in front of the breakeven door.

However, in fact, in the eyes of Dolphin Jun, it is not a problem, TEMU, as a junior who goes to sea, has clearly told everyone the opportunity of this track. On the rare track of the sea of stars that can output deflation, it is actually necessary to accelerate customer acquisition and seize the market.

The proportion of the Choice model continues to rise, which requires warehousing and logistics construction, new investment, and international business expansion requires Guangao to invest in attracting new customers. The key to international business is growth. Therefore, compared with the current pre-investment period, the revenue growth has not been effective, and the investment has led to a widening of losses, Dolphin Jun pays more attention to whether AliExpress can be like TEMU after three or four quarters.

Fifth, rookie: continue to lend the sea east wind

After the restructuring, Cainiao's current revenue includes both internal and external customers of the group, which was 28.5 billion yuan in the quarter, a year-on-year increase of about 24%, significantly higher than market expectations.

The current rookie is almost a companion logic associated with going to sea. AliExpress needs to purchase warehousing and logistics service providers to go to sea, and the rookie who belongs to the same father is the most suitable candidate, and the rapid growth of AliExpress basically confirms the rapid growth of rookies.

The key to rookies here is that in the process of taking off from the east coast, the profit performance is very stable, and the adjusted EBITA of rookies in the fourth quarter reached 1 billion, which is a rare profitable business at present.

Sixth, throw away the garbage project, Alibaba Cloud can finally release profits on scale

The second pillar of Alibaba Cloud Group, after the reorganization, also includes the income generated within the group in the revenue standard. This quarter, Alibaba Cloud Group achieved revenue of 28.1 billion, with a year-on-year growth rate of only 2.6%, and the market felt that Ali was actively abandoning low-quality local deployment of project-based business and giving the expectation of revenue contraction, so the revenue side was better than pessimistic expectations.

Compared with the reluctant positive revenue growth, Alibaba Cloud's profit after adjusting its strategy has been released: it is now the second largest profit contributor business after Taotian. Adjusted EBITA margin reached $2.4 billion for the quarter, with a margin of 8%.

7. Local services: The growth of unit volume is good, but it is dragged down by the unit price

In the fourth quarter, Alibaba's local revenue and loss reduction performance were basically good, of which revenue increased by 13%, and orders increased by more than 20% year-on-year. Adjusted EBITA lost $2.1 billion, narrowing slightly from 16% to 14% after coming out of the summer campaign.

A very interesting observation of this business is that this time Ali has adjusted the order of revenue reporting: Taotian is still at the front, Alibaba Cloud has been pulled from the original third to the second, and local life has been pulled from the third to the third.

Thinking of the rumors of Douyin's acquisition that have been repeatedly refuted but have not been extinguished, if Ele.me continues to stay in Ali's body, I am afraid that it will continue to prove its self-hematopoietic ability. Local life loses more than one billion yuan every quarter, and I am afraid that it is difficult to continue to tolerate Ali, who is keeping an eye on ROI.

8. Entertainment is still a "dish", and the other "N" income has shrunk and the loss has widened

Entertainment is still under pressure under Youku's drag. The revenue is 5 billion, which is 800 million less than the previous quarter, and the loss has also been pulled to 500 million, which is higher than the previous quarter.

For all other businesses, the revenue was contracted due to the high base of Sun Art Retail under abnormal circumstances last year, and the loss was also caused by Sun Art Retail's reduction of specific businesses.

Nine, Ali in surgery: mediocre income, mediocre profits

Taotian's business revenue has passed the line, and the profit performance can only be said to be slightly better than the revenue: the operating profit before amortization excluding equity incentive expenses (ADJ. EBITA) profit was 59.9 billion, an increase of 1.1% year-on-year, which is barely a little better than the 0.5% growth of CMR, and the profit margin was 46%, which was not out of control due to competition.

But in order to make DAUs and orders, Taotian loses revenue is the profit lost, and if the income is not good, the profit is destined to be difficult to surprise.

From the perspective of other sectors, the explanation of the previous business and the following diagram can be seen very clearly, the first three Alibaba Cloud, international business and rookie are basically non-domestic retail track businesses, and the others are mostly mediocre businesses that are "sold at a price":

a. The profit margin of cloud business is rising;

b. The loss rate of international groups that have re-entered the investment period has widened;

c. In the process of rookie revenue increase, the profit margin performance is basically stable;

d. Local efforts to reduce losses and self-proof of survival ability after birth;

e, and Youku in pan-entertainment is still one of the more stressful ones;

f. The rest of the business may be more of an unattractive business to be sold in addition to DingTalk and Quark.

Overall, Alibaba Group's adjusted operating profit before amortization (EBITA) for the quarter was 52.8 billion, which was a reasonable error compared with the market expectation of 52.9 billion, and increased by 1.5% year-on-year, which is barely a positive growth.

To sum up, during the "lying flat" period of Taotian's revenue and profits, the profits squeezed out by rookies and Alibaba Cloud were hedged by the losses of the international group. Reflected in the final result, Taotian's revenue and profit are meant, and after other businesses neutralize each other, the same income and profit are mediocre.

10. What are the changes in the cost level?

First of all, the gross profit margin under the equity incentive caliber of Ali in this quarter was 40.5%, a slight increase of 0.4 percentage points compared with the same period last year.

In terms of expenses, from the perspective of the three fees excluding equity incentives, Ali announced that it had re-entered the investment period, and there were obvious signs of increase: in the case of a barely 5% increase in revenue, sales expenses increased by 12% year-on-year, and the expense ratio climbed by 0.7 percentage points year-on-year, administrative expenses increased by 22% year-on-year, and R&D expenses increased by 9%

Summary: After cutting and crushing one by one, after dismantling and reading, Dolphin Jun has a feeling: in the long surgical process of "scraping carrion and exposing white bones", Ali's income and profits may not be surprising for a period of time.