Alibaba's third quarter financial report disclosure can be considered an information overload.
The sudden incident was the main tone. On November 16th, even before Alibaba's quarterly financial report was released, US Securities and Exchange documents showed that Jack Ma Family Trust JC Properties Limited and JSP Investment Limited planned to reduce their holdings of 5 million Alibaba founder shares on November 21st, involving a total stock market value of 870.7 million US dollars.
Subsequently, when Alibaba released its performance announcement for the second quarter of the 2024 fiscal year (July September), it stated that it would no longer promote the complete separation of Cloud Intelligence Group, and Hema's initial public offering plan was temporarily postponed. The high-profile "1+6+N" spin off reform plan has encountered difficulties.
The combination of two events caused Alibaba's US stock market to decline by nearly 8% before trading on the 16th, and the Hong Kong stock market to fall by over 10% on the 17th. This has led to Alibaba's market value being less than half that of Tencent, and even being approached by Pinduoduo.
From the financial report data, it can be seen that most of Alibaba's businesses are still developing and growing to varying degrees. The group's revenue increased by 9% year-on-year from July to September to 224.79 billion yuan. After adjustment, the EBITA increased by 18% year-on-year to 42.845 billion yuan. Among them, Taotian Group, the core business, maintained a 4% growth in revenue despite a slight decline in GMV; Alibaba International Digital Business Group performed the best, with revenue increasing by 53% year-on-year; Driven by international business, Cainiao Group's revenue growth of 25% year-on-year also leads its peers.
Beyond performance, what's more, this is the first time since Wu Yongming took office on September 10th that he has participated as the CEO of the group in a quarterly financial report analyst conference, fully disclosing Alibaba's future development strategy and path:
Firstly, priority is repeatedly mentioned. Currently, there are only two core businesses of Alibaba, Taotian and Cloud Intelligence Group. It can be seen that Taotian is the core pillar responsible for the present, while Alibaba Cloud is responsible for the future and imagination. The money earned from Taotian needs to be invested in Alibaba Cloud.
Secondly, the first batch of strategic innovation businesses -1688, Xianyu, DingTalk, and Quark - were announced. The above strategic level innovation business will be operated as an independent subsidiary in the organization, breaking the previous positioning restrictions within the group, and Alibaba will continue to invest in it on a 3-5 year cycle.
In terms of encouraging the team, Wu Yongming also conveyed a sense of tension. He said, "No matter how successful the past business model is, it must be turned back to zero and awaken the mentality of starting a new business." He said that Alibaba is embarking on a new entrepreneurial journey and is fully prepared to fully invest in technological change.
Since taking office on September 10th, Wu Yongming, who also serves as the Chairman and CEO of Alibaba Cloud, had few public speeches at the Yunqi Conference a few weeks ago, and only talked about AI in his public appearance at last week's Wuzhen Internet World Summit.
Last night, when Alibaba's new four small dragons business was announced, 1688 CEO Yu Yong expressed his excitement on social media. An employee of Quack told Blue Whale Finance, "We had no idea (before the financial report was released) that we had been elevated to such a high priority. Earlier, LatePost reported that 1688, Xianyu, DingTalk, and Hema were considered the four most promising products internally. Now, quarks are on the upper hand, while Hema is temporarily suspended from listing due to market weakness.
Why is Alibaba Cloud no longer splitting up separately?
The most explosive news of the financial reporting season comes from Cloud Intelligence Group.
In May of this year, Alibaba Cloud announced its intention to completely spin off and list independently within 12 months, and will also introduce external strategic investors; After Zhang Yong resigned without warning in September, Alibaba has officially made it clear that it will no longer promote the complete separation of Cloud Intelligence Group. The swing of this grand strategy is an important setback on Alibaba's magnificent "1+6+N" reform path.
The reason given by Alibaba is due to various uncertain factors.
According to the financial report, "The recent expansion of restrictions on the export of advanced computing chips in the United States has brought uncertainty to the prospects of Cloud Intelligence Group. We believe that a complete spin off of Cloud Intelligence Group may not enhance shareholder value as originally envisioned. Therefore, we have decided not to promote a complete spin off of Cloud Intelligence Group, but will instead face an uncertain environment and focus on establishing a sustainable growth model for Cloud Intelligence Group
The official information only explains external reasons. But an important internal reason is that if Alibaba Cloud wants to continue to maintain a leading position in generation gap with domestic public cloud manufacturers and catch up with the AI computing efficiency of foreign peers, it will have to pay a sustained and high price. Before obtaining commercial returns, the AI competition may result in investment of tens of billions of dollars. From a comprehensive perspective, this investment can only come from within Alibaba.
According to the financial report, Cloud Intelligence Group's revenue for this quarter was 27.648 billion yuan, a year-on-year growth of 2%, compared to the previous quarter's growth rate of 4%. Even after removing the impact of removing nails, it has entered a stage of slow revenue growth. According to the response of Alibaba Cloud executives during media interviews at the Yunqi Conference, Alibaba Cloud's goal at this stage cannot be to reduce losses.
Leaving the cost issue of continuous investment within the Alibaba Group seems to have become an optimal solution. On September 10th of this year, with Wu Yongming's inauguration, he held multiple important positions, serving as both the CEO of the group, the Chairman of Taotian Group, and the Chairman and CEO of Cloud Intelligence Group. Wu Yongming needs to balance the development of the entire group, so Cloud Intelligence Group is still Alibaba's cloud and cannot develop independently from Taotian.
Taotian Group has taken on the role of "making money to support the family" again. This quarter's financial report shows that Taotian Group's adjusted EBITA is 47.077 billion yuan, higher than Alibaba's overall EBITA of 44.806 billion yuan. There are still billions that have been lost by other businesses.
Alibaba stated that more than ever, Alibaba Cloud needs long-term strategic investment and needs to minimize the adverse impact of uncertain factors on future development. At the financial report analysis meeting, Wu Yongming also mentioned that Taotian Group and Cloud Intelligence Group are the most important business development priorities: Taobao Tmall adheres to the "user first" strategy of consumption grading and pricing power; Alibaba Cloud will adhere to the principle of "AI driven, public cloud priority" and develop with a dual wheel drive of AI+cloud computing.
The Ma Yun family's reduction of shares and the discontinuation of the split of Cloud Intelligence Group have led to a drop of nearly $20 billion in the value of Alibaba's US stock market. But for Alibaba Cloud to develop well, the most determined investor is not external investors, but Alibaba itself. After the news came out, several industry insiders expressed their affirmation on social media.
There are still small changes happening. The financial report shows that Taotian Group's Customer Management Revenue (CMR) and Adjusted EBITA both increased by 3% year-on-year, in line with market expectations. But in the future, its business Taobao will have new evaluation indicators. Wu Yongming said that the purchase frequency of Taobao users will prioritize GMV as the most critical goal, and "the purchase frequency directly reflects users' recognition of the consumer platform.
Why 1688, idle fish, nails, and quarks?
The 23 year Alibaba family heirloom business has been defined as the "Four Little Dragons of Innovation" today because we have won the recognition of young users. During the financial report call, Alibaba clearly defined 1688, Xianyu, DingTalk, and Quark as Alibaba's first batch of strategic innovation businesses. Subsequently, 1688 President Yu Yong posted this text on his Moments.
1688 and Xianyu both belong to the first level business departments of Taotian Group. In the recent adjustment, the business leaders were changed to report to Dai Shan of Taotian Group, and DingTalk was also separated from Cloud Intelligence Group in the second half of this year. The most surprising aspect of these businesses is none other than Quark, which belongs to Alibaba's intelligent information business group. A Quark employee told Blue Whale Finance that they also learned about this through news reports.
In August of this year, a reporter from Blue Whale Finance conducted an interview with its CEO Yu Yong in Bozhou, Anhui, a health food industry belt heavily invested in 1688. He stated that the GMV of 1688 had reached 800 billion, and an important change in the customer base in recent years was the addition of Generation Z and a shrinking middle class customer base. The core indicator of the platform in 2023 is still user growth, serving the small B customer base well. 1688 has unleashed new vitality in the new consumer environment, and the wholesale prices of the platform's source factories have higher retail cost-effectiveness, becoming a major source of "pricing power" for Taotian Group.
In the view of Alibaba CEO Wu Yongming, Xianyu will be a lifestyle platform that carries the hobbies and fun of young consumers. This year, Xianyu has also launched products sold on the platform, continuing to serve the hospitality group with a heavy model.
Nails and quarks have gained new imagination due to the arrival of the AI era, which is also a field that Wu Yongming, who has a technical background, pays more attention to. Wu Yongming believes that "everyone and enterprises will have personalized intelligent assistants, and DingTalk is expected to become the best AI intelligent assistant platform. In the era of big models, for young people, Quark has a huge opportunity to create innovative search products.
According to Blue Whale Finance, quark's intelligent information business group has maintained a small-scale profitability in the past few years, and on November 14th, quark also released its self-developed large model. DingTalk is still trading losses for market share. Previously, 1688 President Yu Yong told Blue Whale Finance that in the future, they may work together with DingTalk to create a digital application system that belongs to the industrial belt factory.
Alibaba has still experienced a good quarter of performance, as evidenced by a 9% increase in total revenue of 224.79 billion yuan and an adjusted EBITA of 42845 billion yuan, a year-on-year increase of 18% in operating profit growth.
But as the new CEO and Alibaba's current competitive environment, Wu Yongming must also convey a sense of tension, saying that no product has a long-term moat.
Another evidence of nervousness is that, according to financial report data, Alibaba has shed a total of 14785 employees in the three quarters since January 1, 2023, of which 3720 were lost in the third quarter. Compared to this, Tencent reduced its workforce by 3127 people in the first three quarters of this year.
Alibaba undoubtedly still holds the current market share, with Taotian and Alibaba Cloud occupying the largest market share, and there are also new innovative products to hope for. Like other peers, Alibaba has also placed its future bets on AI. But what's different is that due to the turnover of executives, Alibaba's strategy has been constantly fluctuating this year, coupled with the founder's reduction in holdings, the volatility of Alibaba's stock price and market value will directly affect internal morale.
How to stabilize the military's morale and investor expectations in the shortest possible time is a question that the new management of Alibaba and even its founder Jack Ma need to immediately consider and provide answers.