Alibaba welcomed Wu Yongming's first transcript after holding three CEO positions.
On the evening of February 7th, Alibaba Holdings Group announced its performance for the third quarter of the 2024 fiscal year (i.e. the fourth quarter of 2023). According to the financial report, as of December 31, 2023, Alibaba's revenue increased by 5% year-on-year to 260.35 billion yuan, slightly lower than the market expectation of 261.724 billion yuan; The operating profit was 22.511 billion yuan, a year-on-year decrease of 36%; The net profit was 10.717 billion yuan, a year-on-year decrease of 77%; The net profit attributable to ordinary shareholders was 14.433 billion yuan, a significant decrease of 69% year-on-year.
Alibaba explained that the decrease in operating profits was mainly due to changes in the valuation of equity investments held, as well as impairment of intangible assets of Gaoxin Retail and impairment of goodwill of Youku. If equity incentive expenses and the aforementioned factors are not taken into account, Alibaba's net profit under non US accounting standards (Non GAAP) still decreased by 4% year-on-year to 47.951 billion yuan.
From the conference call content released after the financial report, it can be seen that Alibaba has become more focused after sorting out its business, including revitalizing its two core businesses of e-commerce and cloud computing. However, based on the recent intensive sales rumors and management responses, the sale of some non core businesses may soon be implemented.
After the financial report was released, on February 7th, Alibaba's US stock market closed at $73.64/ADS, a decrease of 5.87%, with a total market value of $184.1 billion. On February 8th, Alibaba's Hong Kong stock closed at HKD 70.3, down 6.14%.
The "core" and "non core" directions diverge
E-commerce remains Alibaba's main business. When analyzing Alibaba's revenue data for the third quarter, out of the total revenue of 260.35 billion yuan, 129.07 billion yuan came from Taotian Group, accounting for 49.6%. However, the year-on-year growth rate was only 2%, ranking last among its six major business groups in terms of growth rate; The adjusted EBITA (operating profit and loss) was 59.93 billion yuan, a slight increase of 1% year-on-year.
Alibaba stated in its financial report that it is in the process of revitalizing Taotian Group and preparing for future growth. In December 2023, Alibaba appointed a new management team for Taotian Group, and Wu Yongming replaced Dai Shan as the CEO of Taotian Group. The original three centers of Taotian Group, namely "Small and Medium sized Enterprise Development Center," "Brand Business Development Center," and "Supermarket Business Development Center," have been retained. In addition, the original independent sections such as content and product technology, as well as the new growth clothing and innovation business sections, have been established as six business units, with relevant responsible persons reporting directly to Wu Yongming.
Alibaba Cloud released profits, but lost its position as the second largest contributor to revenue. The financial report shows that in this quarter, Alibaba Cloud Intelligence Group's revenue was 28.066 billion yuan, a year-on-year increase of 3%; Adjusted EBITA increased by 86% year-on-year to 2.364 billion yuan. Alibaba stated in its financial report that the adjusted EBITA growth of Alibaba Cloud this quarter is mainly due to the positive results of this strategy, healthy growth in revenue from public cloud products and services, and improved profitability. At the performance analyst conference call, Wu Yongming stated that Alibaba Cloud will continue to focus on resource development for public cloud products.
Compared to Taotian Group and Cloud Intelligence, among the six major business groups, Alibaba International Digital Business Group (AIDC) has the fastest revenue growth rate of 44%, with a quarterly revenue of 28.516 billion yuan, accounting for about 11% of the total revenue. However, the adjusted EBITA of this sector resulted in a loss of 3.146 billion yuan, compared to a loss of 645 million yuan in the same period last year.
During the financial report conference call, Jiang Fan, CEO of International Digital Business Group, stated that the losses were caused by three factors. One reason is that the proportion of AliExpress's Choice model in cross-border business has significantly increased. This model is still in its early stages and has obvious economies of scale. Therefore, ADIC needs to increase its business scale through investment. When the business reaches its scale, as the business grows, losses will shrink and profits will be generated. Secondly, the current season is a major promotion season, with more investment in marketing. The third is to make early investments in the Middle East market, including Trendyol.
The revenue growth of local lifestyle groups and large cultural and entertainment groups is both in double digits, but they are still in a loss making state. In this quarter, Alibaba's local living income increased by 13% year-on-year to 15.16 billion yuan, with an adjusted EBITA loss of 2.068 billion yuan, compared to a loss of 2.923 billion yuan in the same period last year; Da Wen Yu's revenue increased by 18% year-on-year to 5.04 billion yuan, with an adjusted EBITA loss of 517 million yuan, which continued to expand compared to the same period in 2022 with a loss of 391 million yuan, mainly due to the increase in losses on Youku.
In addition, revenue from other segments including Gaoxin Retail, Hema, Alibaba Health, Lingxi Interactive Entertainment, Intime, Intelligent Information, Feizhu, DingTalk, etc. was 47.023 billion yuan, a year-on-year decrease of 7%, and adjusted EBITA decreased by 87% year-on-year. Alibaba explained that the main reason for the decline in Gaoxin's retail revenue was the reduction in the scale of its supply chain business and the decrease in average customer price.
It is worth noting that during the financial report conference call, Alibaba's Chairman of the Group's Board of Directors, Cai Chongxin, clearly responded to the issue of selling non core assets, stating that traditional physical retail business is not Alibaba's core business, and it is reasonable to withdraw from such business. However, this will take time and be gradually realized according to market conditions. Meanwhile, according to official disclosed data, Alibaba has completed the withdrawal of $1.7 billion in non core assets in the first nine months of fiscal year 2024.
Increase $25 billion repurchase plan
At the same time as disclosing its financial report, Alibaba further raised its share repurchase plan, expanding the scale of the stock repurchase plan by $25 billion, and increasing the total repurchase scale to $65 billion (approximately RMB 467.6 billion). The repurchase validity period will be extended until the end of March 2027.
In response, Alibaba's management stated at the performance meeting that the size of the repurchase took into account multiple different factors, including cash generation ability, financial leverage, borrowing level, and so on. Based on these factors, we believe that a scale of approximately $12 billion per fiscal year should be very appropriate
According to the timeline, Alibaba's scale repurchase began at the end of 2020.
On December 28, 2020, Alibaba's board of directors authorized the repurchase of $10 billion worth of American depositary shares. On August 3, 2021, Alibaba announced the expansion of its share buyback plan from $10 billion to $15 billion. In March 2022, Alibaba announced the continued expansion of its share buyback program, which will expand from $15 billion to $25 billion. The buyback will continue until the end of March 2024, setting a record for the scale of Chinese concept share buybacks.
Eight months later, Alibaba announced once again its existing $25 billion share buyback plan, an additional $15 billion, and an extension of its validity period until the end of March 2025. At this point, Alibaba's share repurchase plan has expanded to $40 billion.
On January 2nd, Alibaba disclosed its share buybacks for the entire year of 2023. According to the announcement, during the 12-month period ending December 31, 2023, Alibaba repurchased a total of 8979 million shares of common stock (equivalent to 112.2 million American depositary shares) for $9.5 billion (approximately RMB 68 billion). As of the end of the fourth quarter of 2023, Alibaba's share repurchase plan still has a repurchase quota of approximately $11.7 billion.
It is worth noting that frequent and large-scale stock repurchases have not supported the continuous rise of Alibaba's stock price. In October 2020, Alibaba's US stock price once reached a high of nearly $320/ADS, with a market value exceeding $800 billion at one point. However, it has been fluctuating and falling since then. In October 2022, it briefly fell below the listing price of $68/ADS. As of now, the value of Alibaba's US stock market has shrunk to less than $200 billion.
Just recently, a 13F document on the US Securities and Exchange Commission website showed that Blue Pool, a family fund owned by Tsai Chongxin, had increased its holdings of $150 million worth of Alibaba stocks. According to sources cited by the New York Times financial column DealBook, Alibaba Group founder Jack Ma also made a significant increase in his holdings of Alibaba stocks during the same period.
At that time, there were media reports that according to sources, Jack Ma and Chongxin Cai jointly held more shares than SoftBank, and Jack Ma has now replaced SoftBank as Alibaba's largest shareholder. As of now, Alibaba has not made a public response to this.
