Ali has seen through it, and doing a good job in e-commerce is better than anything else
Alibaba's financial report was announced, achieving "steady growth"
On the eve of the Chinese New Year, Alibaba Group released its financial results for Q3 of fiscal year 2024 (quarter ended December 31, 2023), half a month earlier than last year.
For the past quarter, Ali summed it up with the word "steady".
During the reporting period, Alibaba's revenue was 260.348 billion yuan, a year-on-year increase of 5%, and its operating profit was 22.511 billion yuan, a year-on-year decrease of 36%, which Alibaba said was mainly due to the impairment of Sun Art Retail's intangible assets and Youku's goodwill.
Net profit was 10.717 billion yuan, down 77% year-on-year (35.029 billion yuan), which Alibaba said was mainly due to the change in the mark-to-market value of the equity investment held by the group, as well as the decline in operating profit due to the above-mentioned impairment.
Performance summary Source: Alibaba's Q3 financial report for fiscal year 2024
On the whole, Alibaba's performance in Q3 of fiscal year 2024 is to increase revenue but not profits. Moreover, the net cash flow generated by its operating activities was 64.716 billion yuan, a year-on-year decrease of 26%. Free cash flow, a non-GAAP financial liquidity measure, was $56,540 million, down 31% year-over-year.
In this regard, Alibaba said that this was mainly due to the increase in capital expenditures and certain one-off factors, including the difference in the timing of income tax payment and changes in working capital related to certain of our businesses.
In terms of specific segments, Alibaba's six major business groups have maintained a growth trend:
Taotian Group's revenue was 129.070 billion yuan, a year-on-year increase of 2%, Cloud Intelligence Group's revenue was 28.066 billion yuan, a year-on-year increase of 3%, International Digital Business Group's revenue was 28.516 billion yuan, a year-on-year increase of 44%, Cainiao Group's revenue was 28.476 billion yuan, a year-on-year increase of 24%, Local Life Group's revenue was 15.160 billion yuan, a year-on-year increase of 13%, and Dawenyu's group's revenue was 5.040 billion yuan, a year-on-year increase of 18%.
Among them, Taotian Group, which attracted the most attention, China's retail business revenue was 123.762 billion yuan, an increase of only 1% compared with 122.736 billion yuan in the same period last year, and China's wholesale business increased significantly, with a revenue of 5.308 billion yuan in the quarter, a year-on-year increase of 23%.
The good news is that Taotian Group has achieved strong growth in online GMV, number of transaction buyers, and order volume in the quarter.
Taotian Group's highlights of the quarter Source: Alibaba official account
Xu Hong, chief financial officer, said at the earnings conference that he is not worried about a slight decline in the overall take rate of Taotian Group, because the decline is mainly due to structural changes, and consumers currently have a strong preference for affordable and good goods with competitive prices.
From this point of view, the low-price strategy in this quarter has had a certain impact on Taotian Group's revenue, but it has achieved a good effect of promoting activity.
Wu Yongming, CEO of Alibaba Group and CEO of Taotian Group, also said that Taotian Group is still in the process of how to increase the consumption frequency of users to drive GMV growth. According to the plan, in the future, on the basis of a significant increase in GMV, we will help small and medium-sized businesses better improve their monetization efficiency through the optimization of advertising products.
Wu Yongming also emphasized that the service capability of the Taotian platform is the most comprehensive and complete, and he believes that in the future, by providing better goods, better prices and better services, it will be able to increase the consumption frequency of users and retain more consumers.
"With our strategic focus, we had a solid quarter. The Group's top priority is to rekindle growth momentum from its two core businesses, e-commerce and cloud computing. In the coming year, we will invest more in improving the core user experience to support Taotian Group to regain growth and consolidate its market leadership position. We will focus our resources on developing public cloud products and maintaining the strong growth momentum of our international commerce business. Wu Yongming said.
AI and going overseas have become the key to Ali's breakthrough
On September 10 last year, Tsai Chongxin officially succeeded Daniel Zhang as chairman of the board of directors of Alibaba Group, while Wu Yongming took over the positions of CEO of Alibaba Group and chairman and CEO of Alibaba Cloud.
Wu Yongming, Daniel Zhang, Cai Chongxin Source: Alibaba public account
In other words, the just-released financial report for the quarter ended December 31, 2023 is the first financial report of Alibaba Group after the "change of leadership", which is of great significance. The various changes revealed in this reflect the key direction of Alibaba in the coming year.
For example, at the end of November last year, Ma Yun made a rare statement on the intranet: The era of AI e-commerce has just begun, and it is both an opportunity and a challenge for everyone.
On the conference call after the release of the financial report, an analyst asked whether Wu Yongming, who has a technical background, now directly manages the two major businesses of Taotian Group and Alibaba Cloud, will he see more synergies between them in the short term, and will he use AI to drive the growth of CMR (customer management revenue)?
Wu Yongming said that Alibaba has found great potential for synergy between Alibaba Cloud and Taotian Group, especially in terms of AI, and Alibaba Cloud is committed to developing a large model "Tongyi Qianwen". On this basis, Ali did some tests and found that there is a lot of room for improvement in some businesses such as search and advertising, whether it is the transaction conversion rate of search or the matching and monetization efficiency of advertising.
He believes that the in-depth investment and research on AI will have a very positive help for Taotian Group's future search advertising products, but it is still in the early stages of product development.
Judging from the financial report data, Alibaba Cloud's revenue increased by 3% to 28.066 billion yuan in the quarter, and the adjusted EBITA profit surged by 86% to 2.364 billion yuan, hitting a new high.
According to the financial report, Alibaba Cloud continues to improve the quality of revenue by reducing project-based contract revenue with lower profit margins. At the same time, the healthy growth of public cloud products and services revenue in the quarter led to an increase in profitability.
With strong demand for AI, Alibaba Cloud focused on its core business and achieved steady revenue growth and profit release beyond expectations. Its AI products are rapidly iterating, the open source community is thriving, and the domestic and foreign market strategies are parallel, which has won Alibaba Cloud a broad market. In the future, as Alibaba further focuses on e-commerce and cloud computing, we also look forward to what new changes the collaboration between the two can bring.
Another highlight of this financial report is Alibaba International Digital Business Group, especially AliExpress.
During the reporting period, Alibaba International Digital Commerce Group (AIDC)'s revenue increased by 44% year-on-year to 28.516 billion yuan, and the overall orders increased by 24% year-on-year. Among them, the international retail business revenue was RMB23.26 billion, a year-on-year increase of 56%. This was mainly due to the strong growth of AIDC's overall retail business orders, driven by the strong performance of all its major retail platforms, the revenue contribution from AliExpress Choice, and the improvement in the realisation rate.
It is reported that AliExpress has achieved a year-on-year increase of more than 60% of orders, Trendyol's order volume continues to maintain double-digit growth, and Lazada's loss per order narrows year-on-year.
AIDC's Highlights of the Quarter Source: Alibaba Official Account
Regarding the fact that the loss of AIDC has expanded to 3 billion yuan, Jiang Fan, CEO of Ali International Digital Business Group, pointed out that during the financial reporting period, the proportion of AliExpress's Choice model based on the full custody and semi-custody model in cross-border business has increased significantly.
This model is still in its early stages, and there are obvious economies of scale, so AIDC needs to invest in scaling up the business. When the business reaches scale, as the business grows, the loss will shrink and the business will bring profits.
He believes that in the choice model, there is a significant increase in user experience and retention. It is believed that in a longer cycle, there will be a better return on investment. So the next priority is to continue to invest and do large-scale.
It is worth mentioning that on December 20, 2023, Alibaba announced that Wu Yongming, CEO of Alibaba Group and chairman of Taotian Group, will also serve as CEO of Taotian Group, and Dai Shan, former CEO of Taotian Group, will be responsible for assisting in the establishment of Alibaba Group's asset management company.
From then on, Wu Yongming will serve as the CEO of Alibaba Group, Taotian Group and Alibaba Cloud Intelligence Group.
This means that Wu Yongming's impact on Taotian Group has not been reflected in the latest financial report. At the same time, as Ali predicted, Wu Yongming wears multiple hats, which will help lead Taotian's transformation with technological innovation, ensure that the group focuses on core strategic e-commerce and cloud, and forms a unified command and high-intensity continuous investment.
\Alibaba 2024: Shrinking and Focusing
After the release of Alibaba's latest financial report, it is already clear that it needs to focus on its core businesses in 2024: e-commerce and cloud computing. But at the same time, Ali's "slimming" is also continuing.
On the conference call after the earnings report, Ali executives replied to some recent "gossip".
For example, in response to the rumors of "Douyin's acquisition of Ele.me", Ali's chief financial officer Xu Hong said that the rumors have been refuted before and there is no need to repeat them, "Ele.me is still a very important asset for our near field."
Ele.me rider Source: E-commerce News
As for the recent rumors that "Ali is considering selling Yintai", Tsai Chongxin also responded indirectly at the earnings conference. According to him, in the nine months of fiscal year 2024, Alibaba has exited $1.7 billion in non-core assets, and the sale of non-core assets is progressing very well.
At the same time, Tsai said that there are still many traditional brick-and-mortar retail businesses on Alibaba's balance sheet, which are not core businesses, and it is reasonable to exit, but it will take time to achieve this given the current challenging market conditions.
From this point of view, not only Intime Department Store, but also Alibaba's attitude towards Sun Art Retail (including RT-Mart, etc.) may also be changing. Especially in this financial report, Alibaba has made an impairment provision for Sun Art Retail.
In addition, the listing plans of Cainiao and Hema do not seem to be as rumored, and Cainiao can IPO as early as the first quarter of this year.
Xu Hong said at the earnings conference that last year, Ali announced a business restructuring, one of the goals is to hope that the valuation can reflect the real intrinsic value of each business unit, and there are many ways to achieve this goal.
However, it was also mentioned at the time that whether and how the deal proceeds depends on market conditions, and that "current market conditions do not truly reflect the intrinsic value of these businesses."
In this regard, Tsai Chongxin also stated that Alibaba is not in a hurry to let Cainiao and Hema carry out IPOs at present.
In 2024, Alibaba, which has been born for 25 years, is facing more competition and challenges. If you want to continue to develop with a "steady" attitude, or even achieve new growth, you have to stop and take a hard look at yourself. Draw a clear line between the "core" and the "non-core", find the rhythm and direction that really suits you, and then start again.
It is worth mentioning that in this financial report, Ali also disclosed an upward share repurchase plan.
For the full year of 2023, Alibaba has repurchased a total of 897.9 million ordinary shares for a total of $9.5 billion. With the approval of the board of directors, Alibaba increased its share repurchase program by another $25 billion, which is valid until the end of March 2027. In other words, after the scale increase, Alibaba still has a share repurchase quota of 35.3 billion US dollars in the next three fiscal years.
As executives such as Jack Ma and Joe Tsai have repeatedly emphasized, Alibaba has always believed that the current share price is grossly undervalued and does not reflect the actual value of the company. The buyback is a testament to the confidence of Alibaba's board of directors and executives in its business and cash flow prospects.
Author | Li Songyue