Alibaba will sort out the strategic priorities of existing businesses and define core and non core businesses. Cai Chongxin stated that Alibaba is in the best financial position to invest for growth.
On November 16th, Alibaba (NYSE: BABA, 09988. HK) released its financial report for the second quarter of the 2024 fiscal year (as of September 30). In that quarter, Alibaba's revenue was 224.79 billion yuan, a year-on-year increase of 9%, and the market expected 224.096 billion yuan. The net profit of Non GAAP was 40.188 billion yuan, a year-on-year increase of 19%. Non GAAP diluted earnings per ADS were 15.63 yuan, a year-on-year increase of 21%.
Revenue increased by 9% year-on-year, while operating profit and adjusted EBITA increased by 34% and 18% respectively. For Alibaba, this should have been a stable quarter, but the combination of multiple negative news caused the stock price to plummet before the market.
On the news, Alibaba announced in its financial report that due to various uncertain factors, it will no longer promote the complete separation of the Cloud Intelligence Group; Hema Fresh's initial public offering plan has been postponed; According to the F144 document disclosed on the official website of the Securities and Exchange Commission (SEC), Jack Ma Family Trust plans to reduce its holdings of 10 million Alibaba shares, with a market value of over 870 million US dollars.
At the phone conference that evening, several executives including Alibaba Group Chairman Cai Chongxin, Alibaba CEO Wu Yongming, and Taotian Group CEO Dai Shan attended the meeting, but did not respond positively to whether the Alibaba Cloud spin off listing plan would be suspended or permanently cancelled, nor did they respond to the Ma Yun family trust's plan to reduce its holdings.
As of the close of the US stock market, Alibaba fell more than 9% to $79.110 per share.
Further investment will be made to demonstrate the value of cloud business
Alibaba Group will maintain long-term and resolute investment in Alibaba Cloud's strategic direction, while Cloud Intelligence Group will continue to operate as an independent company, adopting a CEO responsibility system authorized by the board of directors, "said Wu Yongming.
Alibaba stated in its financial report that 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. The complete split of the Cloud Intelligence Group may not enhance shareholder value as originally envisioned, so it has been decided not to promote the complete split of the Cloud Intelligence Group, but instead to face uncertain environments and focus on establishing a sustainable growth model for the Cloud Intelligence Group.
At the financial report conference that night, investors asked if Alibaba Cloud's listing plan would be suspended or permanently cancelled, and if the market situation would change, Alibaba Cloud's spin off would be reconsidered. Cai Chongxin did not provide a clear answer to this.
Cai Chongxin officially took over as the Chairman of the Board of Directors of Alibaba Group in September of this year. He stated that he wanted to achieve a complete separation of Alibaba Cloud at that time, in order to demonstrate the true value of the business through the so-called financial engineering method. At that time, Alibaba Cloud was in a predictable environment and the entire operation, which could transparently demonstrate the growth trend of the business to investors, Nowadays, the overall environment has changed, and we are no longer using financial engineering, but through further investment to demonstrate the value of cloud business. In the future, we will seek to increase its growth, including revenue and profits
Wu Yongming believes that the business model of cloud computing can be divided into two stages. Firstly, in the traditional market with CPU (central processing unit) as the core, Alibaba Cloud has a strong product portfolio, emphasizing the focus on public cloud. Alibaba Cloud has network and scale effects, providing cost-effective services, which is a growth strategy; The second is for the future, with AI computing centered around GPUs (graphics processors). However, changes in international policies will have an impact on the Chinese market, and in the foreseeable future, the domestic AI computing chip market is expected to be very fragmented.
Wu Yongming stated that he will make trade-offs between all Alibaba Cloud products and business models, reduce project based sales orders, and increase investment in public cloud core products. Adhering to prioritizing public clouds can enable us to reap economies of scale and technological dividends in the future
According to the financial report, in the second quarter, Alibaba Cloud Intelligent Group's revenue was 27.648 billion yuan, a year-on-year growth rate of 2%, ranking last among Alibaba's business groups.
In addition to Alibaba Cloud, Alibaba also disclosed in its financial report that Hema's initial public offering plan is temporarily suspended. "We are evaluating the market conditions and other factors necessary to ensure successful project implementation and enhance shareholder value
In the previous quarter's financial report, Hema hardly mentioned it. At that time, analysts pointed out that "Hema is listed independently, and its performance may have already been listed." According to information disclosed by Alibaba in May this year, Alibaba approved Hema to start the listing process, which is expected to be completed within the next 6 to 12 months, which is the earliest to be completed in November this year.
According to this schedule, Hema is considered the first independent listed subsidiary of Alibaba after launching reforms this year, but in fact, this title fell to Cainiao, who submitted a prospectus to the Hong Kong Stock Exchange in September.
It is reported that Hema's IPO plan, which may have been temporarily suspended in Hong Kong, was announced in September because the valuation after negotiations with potential investors did not meet expectations, or because market confidence in consumer stocks remained weak. At that time, Hema responded to a reporter from Pengpai News, saying, "I will not comment
In the financial report, Hema's performance is classified as "other segment income". As of September 30, 2023, for the three months ended, the revenue of all other segments was 48.052 billion yuan, maintaining a stable year-on-year growth, mainly contributed by the revenue growth of Hema, Feizhu, Alibaba Health, and Intelligent Information, partially offset by the decrease in customer order prices caused by consumers' reduced hoarding behavior compared to the same period last year, resulting in a decrease in Gaoxin's retail revenue.
Taobao's revenue increased by 4%, with 1688 and Xianyu operating as independent subsidiaries
According to the financial report, Alibaba's revenue from retail businesses in China for the three months ended September 30th was 92.56 billion yuan, a year-on-year increase of 3%. Customer management revenue increased by 3% year-on-year, mainly due to the increased willingness of merchants to invest in advertising, partially offset by a slight decrease in online GMV (excluding unpaid orders) on Taobao and Tmall, in line with market expectations. Taotian Group's total revenue was 97.654 billion yuan, a year-on-year increase of 4%.
Dai Shan pointed out at the financial report that Taotian's DAU (daily active users) achieved rapid growth in the quarter, with over a million new merchants added month on month. The financial report shows that the effectiveness of Taobao's price power strategy has been evident this quarter, with continuous growth in the number of Taobao app users, transaction buyers, and order volume. 88VIP members have shown double-digit growth year-on-year, with a scale of over 30 million. According to data from October, the average traffic of low-priced products on Taobao's entire network has increased by 62.5% in the past 30 days.
When discussing the effectiveness of the cooperation between Double 11 and WeChat, CEO Dai Shan of Taotian Group stated that the current cooperation with WeChat is still very early and has limited impact. The cooperation between the two sides focuses on upgrading the three major engines, such as grasping the traffic of video accounts in terms of traffic expansion and improving conversion.
It is reported that before the Tmall Double 11, Alibaba Mama had successively collaborated with WeChat, Bilibili, Zhihu, Weibo, and other brands. Brand merchants can directly redirect to Taobao App by placing advertisements on WeChat Moments, mini programs, video accounts, and other fields.
It is worth noting that International Digital Commerce was Alibaba's fastest-growing business group in the quarter, with revenue increasing by 53% year-on-year to 24.5 billion yuan. After adjustment, the EBITA loss was 380 million yuan, shrinking by nearly half year-on-year.
The financial report shows that in the quarter, orders from retail platforms such as AliExpress, Lazada, and Trendyol grew rapidly, driving the overall order growth of Alibaba's international retail business to 28% year-on-year.
At the financial report meeting, Wu Yongming first comprehensively explained Alibaba's strategic plan for the new stage of development, and "priority" was the most frequently mentioned keyword by Wu Yongming that night. On the basis of clarifying the group's reform measures, Wu Yongming introduced the development strategies and priorities of each business group. Taobao and Tmall adhere to the consumption classification and pricing power strategy, and user purchase frequency will be prioritized over GMV as the most critical goal. Alibaba Cloud will adhere to the dual wheel drive development of AI+cloud computing.
Wu Yongming announced Alibaba's first batch of strategic innovation businesses, namely 1688, Xianyu, DingTalk, and Quak. These business organizations will operate as independent subsidiaries, breaking the previous positioning restrictions within the group, and Alibaba will continue to invest in them on a 3-5 year cycle.
Wu Yongming stated that Alibaba will sort out the strategic priorities of existing businesses and define core and non core businesses. For businesses that meet user needs and AI driven change trends, priority investment will be given as the first priority; For innovative products facing the future, we will adhere to long-term principles and firmly invest, with a three-year evaluation and testing cycle.
As of the end of the quarter, Alibaba Group's net cash was $63 billion, with free cash flow reaching $27 billion in the past 12 months. Cai Chongxin said, "Alibaba is in the best financial position to invest for growth
The financial report shows that Alibaba's board of directors has approved the distribution of cash dividends for the fiscal year 2023, with a total dividend amount of approximately $2.5 billion. At the same time, Alibaba continues to implement its share repurchase plan. As of the end of the quarter, Alibaba had repurchased approximately 18.6 million ADSs (equivalent to approximately 148.4 million ordinary shares) for approximately $1.7 billion under its share repurchase program. Under the current share repurchase plan authorized by the board of directors, Alibaba still has a repurchase limit of approximately $14.6 billion, which is valid until March 2025.
The financial report did not disclose Jack Ma's shareholding, which has been a common practice in Alibaba's financial reports in recent years. According to data as of July 2, 2020, Jack Ma's shareholding had dropped to 4.8%, below 5%. In the prospectus disclosed by Alibaba's return to the Hong Kong Stock Exchange in November 2019, Jack Ma held approximately 6.1% of the shares. In terms of equity, Ant Group has also strengthened its isolation from Alibaba Group and announced a shareholder structure adjustment in January this year. Although Jack Ma owns about 10% of the shares, he has given up voting rights and is no longer the actual controller of Ant Group.