It has been more than a year since Alibaba founder Jack Ma proposed "returning to Taobao, returning to users and returning to the Internet". Alibaba's changes and adjustments are still on the way and require more patience.
On August 15th, Alibaba Group (BABA. NYSE, 09988. HK) released its financial report for the first quarter of fiscal year 2025 (second quarter of 2024), showing that Alibaba's revenue for the second quarter of 2024 was 243.236 billion yuan, a year-on-year increase of 4%; The operating profit was 35.989 billion yuan, a year-on-year decrease of 15%; Adjusted EBITA (a non GAAP financial indicator) decreased by 1% year-on-year to RMB 45.035 billion.
Alibaba explained in its financial report that the decline in operating profit was mainly due to the return of 6.901 billion yuan in equity incentive related expenses in the same period last year, and the adjusted EBIT decline was mainly due to increased investment in e-commerce business.
Alibaba's strategy has been effective this quarter, with Taotian Group's market share stable and performance returning to a growth track. The cloud computing business has also shown positive growth momentum, "Alibaba Group CEO Wu Yongming said at the financial analysis meeting.
However, from a fundamental perspective, Alibaba's multiple businesses, including its core e-commerce business Taotian, are facing fierce competition. While ensuring investment, they also face the need to improve commercial efficiency.
In addition to core businesses such as Taobao, Tmall, Cloud, and AIDC, other businesses will significantly improve efficiency and vigorously promote commercialization to reduce losses. It is expected to achieve breakeven within one or two years, and after breakeven, it can gradually bring large-scale profit contributions to the group Wu Yongming responded to analysts' questions during a conference call after the release of the financial report.
Taotian urgently needs to 'make money'
According to the financial report, Taotian Group's revenue for this quarter was 113.373 billion yuan, a decrease of 1% compared to the same period last year, which was 114.953 billion yuan.
It is worth noting that the customer management revenue of China's retail business sector increased by 1% year-on-year, mainly due to high single digit growth in online GMV (total merchandise transaction volume), partially offset by a decrease in Take rate (monetization rate). The year-on-year decrease in monetization rate is mainly due to the increasing proportion of GMV generated by emerging models with low liquidity within Taotian Group.
At the same time, Alibaba stated that Taobao Group has increased its investment in "improving user experience", resulting in higher consumer retention and purchase frequency. Taotian Group's quarterly online GMV increased by single digits year-on-year, with double-digit growth in order volume, and the number of 88VIP members increased to over 42 million households.
However, for Taobao, the top priority is to accelerate the improvement of commercialization efficiency. GMV on Taobao still shows high growth, but customer management revenue only increased by 1% year-on-year, partially offset by a decrease in monetization rate. From this, it can be seen that optimizing the monetization rate of Taobao will become the top priority of the Taobao system reform in the future. "According to speculative finance author Tong Zhibin, the management team has recently launched a new marketing product called" full site promotion ", hoping that the third and fourth quarter financial reports will have better reflection.
In response to the further widening gap in GMVCMR (customer management revenue), Wu Yongming said, "Taobao and Tmall prioritize improving users' purchasing experience, thereby promoting users' purchase frequency and driving GMV growth. After the initial market share stabilizes, progress towards increasing monetization rates and commercialization measures will begin to accelerate from this quarter onwards
According to its introduction, these measures mainly include monetizing new product forms such as live streaming and billions of subsidies, promoting the full launch of the entire website, and starting from September, levying a basic software service fee of 0.6% from merchants on Taobao and Xianyu platforms.
In addition, according to the monetization rate data of e-commerce enterprises in 2023 collected by Guosen Securities, the monetization rate of Tiktok e-commerce soared to 9% in 2023, the monetization rate of Pinduoduo exceeded 4.5%, and the monetization rate of Taobao Tmall was about 3.77%. Specifically comparing Taobao with Pinduoduo, the monetization rate of Taobao in 2023 is about 1.1%, while Pinduoduo's monetization rate is four times that of Taobao, about 4.4%.
From this, it can be seen that Taobao previously charged merchants basic software service fees in order to increase Taobao's monetization rate, which will also become an important means for Alibaba to increase revenue in the coming period.
Multiple businesses achieve breakeven within 1 to 2 years
In addition to its core e-commerce business, Alibaba's multiple businesses also need to further promote commercialization.
At present, Alibaba has six major business groups under its umbrella, namely Taotian Group, Cloud Intelligence Group, Alibaba International Digital Business Group, Cainiao Group, Local Life Group, and Big Entertainment Group.
Alibaba Cloud is regarded as another core business of Alibaba. According to financial report data, Alibaba Cloud's revenue for this quarter increased by 6% to 26.549 billion yuan, with AI related product revenue achieving triple digit growth and public cloud business achieving double-digit growth. Alibaba stated in its financial report that the significant increase in Alibaba Cloud's profits is mainly due to its focus on public cloud strategy, improved product structure, and increased operational efficiency.
It is worth noting that AI has driven the revenue growth of Alibaba Cloud. According to the financial report, Alibaba Cloud's external revenue (excluding cloud revenue from Alibaba affiliated companies) increased by 6% year-on-year in the quarter, and the number of paid users on Alibaba Cloud AI platform Bailian increased by over 200% compared to the previous quarter.
Open source and openness have also brought new business growth to Alibaba Cloud. During this quarter, Alibaba Cloud released the open-source model Qwen2-72B. The number of paying users using Alibaba Cloud AI platform Bailian has increased by over 200% month on month, and hundreds of large model APIs have been integrated on Bailian, providing developers with diverse model choices.
As Alibaba's overseas e-commerce business, Alibaba International Digital Business Group's revenue for this quarter was 29.293 billion yuan, an increase of 32% from 22.123 billion yuan in the same period last year.
The financial report shows that the strong revenue growth of the group is driven by the growth of cross-border business, especially the AliExpress Choice business. AliExpress orders maintain rapid growth and continue to focus on logistics experience with Cainiao, further shortening the average delivery time.
This quarter, AliExpress introduced a richer supply to meet consumer demand through billion yuan subsidies for brand overseas expansion, major projects, and other initiatives. AliExpress has added the "overseas custody" model, mainly targeting merchants whose products are already overseas and have overseas qualifications. The platform handles sales, marketing, and after-sales, and merchants are only responsible for shipping. Currently, AliExpress has partnered with three major overseas warehouses to offer overseas custody and settlement services.
It is worth noting that as the infrastructure of Alibaba's e-commerce business, Cainiao's revenue in this quarter increased by 16% year-on-year to RMB 26.811 billion, mainly due to the revenue growth and operational efficiency improvement brought by cross-border logistics fulfillment services.
It is reported that the current strategic market focus of Cainiao is still to continue building a global logistics network, providing high-quality experiences for operators and consumers on the platforms of Taotian Group and Alibaba International Digital Business Group, while opening up competitive express delivery, supply chain, and logistics technology services to global merchants and users.
In addition, Alibaba's local life business revenue was 16.229 billion yuan, an increase of 12% from 14.45 billion yuan in the same period last year; Alibaba Entertainment's revenue for the second quarter of 2024 was 5.581 billion yuan, an increase of 4% compared to the same period last year's 5.381 billion yuan.
When it comes to the profitability of multiple businesses, Wu Yongming said, "It is expected to achieve breakeven within one or two years. After breakeven, it can gradually bring large-scale profit contributions to the group
In their view, these businesses need to further invest in improving operational efficiency, balance scale and efficiency, and pay more attention to the issue of commercialization rate. In terms of local living, it is necessary to increase the scale and order volume. For example, Ele.me is a brand new business model that needs to gradually improve its UV (independent visitor), and Gaode's sedan service also needs to increase its UV. When both scale and efficiency are improved, losses can be significantly reduced and it can move towards positive profits, "said Wu Yongming.