Alibaba's FY24 net profit fell sharply in Q4, and the strategic focus was on the core of the business

Source: From Alibaba's official website

Text: Luo Zeng

On the evening of May 14, Alibaba Group released its financial results for the fourth quarter and full year of fiscal 2024 ended March 31, 2024.

A year after the "spin-off", some new changes are taking place at Alibaba. Previously, Alibaba split the company into six business groups and N business companies. The aim of this change is to increase the independence and flexibility of each business unit and promote the long-term development of the company.

In terms of financial performance, it has had a certain impact on Alibaba's short-term profits. However, in the medium to long term, it will help each business segment to focus more on itself and improve operational efficiency and profitability.

Alibaba's Q4 net profit fell sharply, and the decline once touched 8% after the opening

Alibaba's share price fell in the pre-market after the May 14 earnings report, and the U.S. stock fell as much as 8% after the open, and then recovered but still declined, reflecting the market's mixed sentiment about the earnings report.

According to the financial report, in fiscal year 2024, Alibaba Group's revenue reached 941.168 billion yuan, a year-on-year increase of 8%; Adjusted EBITA profit was 165.028 billion yuan, up 12% year-on-year.

From the perspective of revenue structure, the e-commerce business is still its largest source of revenue, especially Taobao and Tmall, as its core e-commerce business, have maintained a strong growth momentum. At the same time, Alibaba Cloud, as an important growth engine of the company, also achieved double-digit year-on-year growth in revenue and triple-digit year-on-year growth in AI-related revenue, demonstrating Alibaba's deep strength and great potential in the field of cloud computing and AI.

However, behind the bright revenue growth, it is also facing a profitability crisis in some businesses.

According to the data, Alibaba's revenue in the fourth fiscal quarter was 221.874 billion yuan, a year-on-year increase of 7%, exceeding market expectations; However, the net profit attributable to ordinary shareholders was 3.270 billion yuan, a year-on-year decrease of 31%; Non-GAAP net profit was 24.418 billion yuan, down 11% year-on-year. What's more noteworthy is that its net profit in the fourth quarter fell sharply by 96% year-on-year, only 919 million yuan.

It is reported that this is mainly due to the company's increased investment in the e-commerce business in the past year and the granting of retention incentives to rookie employees, resulting in rising costs. In addition, Alibaba also holds equity investments in some listed companies, and changes in mark-to-market value of these investments may also have an impact on net profit. Therefore, from the perspective of cost structure, Alibaba needs to pay more attention to cost control and efficiency improvement to achieve more stable profitability.

The business grew synergistically, and the results of strategic focus appeared

From a specific business perspective, in the past year, Alibaba's e-commerce, cloud computing, and AI businesses have achieved synergistic growth.

In Alibaba's huge business matrix, the e-commerce sector has always played the role of the core engine. Among them, Taobao Tmall, as the core of this engine, still maintains amazing growth momentum. In fiscal year 2024, Taotian Group's revenue increased by 5% to 434.893 billion yuan, accounting for more than 46% of total revenue. This growth was mainly driven by healthy year-over-year growth in online GMV, as well as a boost in the Consumer Electronics and Appliances categories. It is reported that through continuous optimization of user experience, Taotian and international e-commerce businesses have achieved double-digit year-on-year growth, and at the same time, the number of 88VIP members has also shown a double-digit year-on-year growth trend, exceeding the 35 million mark.

In the field of cloud computing, Alibaba Cloud has become another bright spot in Alibaba's growth by virtue of its comprehensive advantages in technology, services and ecology. In fiscal year 2024, the revenue of Cloud Intelligence Group will be 106.374 billion yuan, a year-on-year increase of 3%; Adjusted EBITA was RMB6,121 million, up 49% year-over-year, a significant increase driven by Cloud Intelligence Group's focus and investment in public cloud products and AI-related products.

At the same time, in terms of international business, Alibaba International Digital Business Group (AIDC)'s revenue in fiscal year 2024 will be 102.598 billion yuan, a year-on-year increase of 46%, of which international retail business revenue increased by 60% and international wholesale business revenue increased by 7%, mainly due to the strong growth of AIDC's retail business orders as a whole, as well as the growth of value-added service revenue related to cross-border business.

In addition, it is worth mentioning that Cainiao Group achieved an adjusted EBITA turnaround of RMB1.402 billion in fiscal 2024 and revenue of RMB99.02 billion, up 28% year-on-year, thanks to the growth in revenue from cross-border logistics fulfillment services and the improved operating performance of the domestic logistics business.

Behind some of the losses, the challenges of burden reduction and efficiency improvement

However, while the overall growth has been accompanied by the loss and decline of some businesses, Alibaba has also faced the challenge of losing money and declining its business.

Among them, Local Life Group's revenue in fiscal year 2024 was 59.802 billion yuan, a year-on-year increase of 19%, but the adjusted EBITA still lost 9.812 billion yuan. Although the increase in revenue was driven by the increase in orders from the Ele.me and AutoNavi businesses, Local Life Group still needs to do more to improve operational efficiency and user experience.

At the same time, Dawen Entertainment Group's revenue in fiscal year 2024 was 21.145 billion yuan, a year-on-year increase of 15%, and the loss of adjusted EBITA decreased but still reached 1.539 billion yuan. The strong revenue growth of Alibaba Pictures' offline entertainment business is the main driver, but Dawen Entertainment Group still needs to find a balance between content investment and profitability.

In addition, the "all other" business segments, including Freshippo, Ali Health, Yintai and DingTalk, reported revenue of 192.331 billion yuan in fiscal 2024, down 2% year-on-year, and a loss on adjusted EBITA of 9.160 billion yuan. The decline in revenue and the increase in losses in this segment were mainly affected by the offline retail business, suggesting that Alibaba needs to be more focused and efficient on the road to diversification.

From the perspective of the industry, Alibaba's financial performance in Local Life Group, Dawen Entertainment Group and other diversified businesses suggests the challenge of reducing the burden and improving efficiency of the company's non-core businesses. By optimizing resource allocation and reducing losses in non-core businesses, Alibaba can focus more on the development of its core business and improve overall operational efficiency.

Focus and burden reduction, Alibaba's strategic choice

Investors have mixed views on Alibaba's latest earnings report and market performance.

Some investors expressed concern about Alibaba's loss-making and declining business, believing that the company needs to pay more attention to cost control and profitability improvement; Some investors also believe: "In general, Alibaba's financial report shows that the general direction of the strategy is expansion, addition, active investment, not slack off on growth, and can allow short-term profits in exchange for long-term development; At the same time, do not forget to reward shareholders. I feel that its strategic direction is more focused, and I also think that Ali will focus on resources in the current direction and get rid of some oil bottles, and will return to the track of accelerated growth. ”

In fact, in the face of a complex and volatile market environment, Alibaba has made positive changes and adjustments in the past year.

On the one hand, Alibaba is more focused on its core business and key growth areas. In the field of e-commerce, we have promoted the continuous growth of core businesses such as Taobao and Tmall through measures such as improving user experience, optimizing product supply and strengthening merchant support. In terms of cloud computing and AI, we will increase investment and R&D efforts to promote the rapid development of related businesses. This focused strategy will help Alibaba better grasp market opportunities and enhance its overall competitiveness.

On the other hand, Alibaba is also actively reducing its burden, optimizing its asset structure and reducing operating costs. For example, by splitting off business groups and business companies, more flexible and efficient management and operations can be achieved. At the same time, for some non-core or loss-making businesses, Alibaba is also considering divestiture or optimization to reduce the overall burden and improve profitability.

Overall, although Alibaba's financial report reflects the loss and decline challenges of some businesses, it also shows its strategic choice at the two levels of focus and burden reduction. By focusing on its core business and key growth areas, optimizing its asset structure and reducing operating costs, Alibaba is poised to achieve more robust and sustainable development. At the same time, investors have seen Alibaba's efforts to actively reward shareholders, which has helped to increase market confidence and recognition of the company. In the future, as the market environment continues to change and competition intensifies, Alibaba needs to continue to deepen its transformation and adjust its strategy to adapt to new challenges and opportunities.