Alibaba (HKG: 9988) / (NYSE: BABA) announced its 1Q24 results with the main highlight being its strong business momentum from strong consumption trends and operating efficiency resulting in higher revenue and earnings despite the continued uncertainty of the pace of China’s post covid recovery.
Here we analyse Alibaba’s 1QFY24’s results to understand the progress made since.
Alibaba’s 1Q24 financial results summary
| P&L in RMB’m | Jun’23 | Jun’22 | Mar’23 | Dec’22 | Sep’22 | Variance (%) | Variance (%) |
| EPS in RMB’$ | Jun’23 vs Jun’22 | Jun’23 vs Mar’23 | |||||
| Revenue | 234,156 | 205,555 | 208,200 | 247,756 | 207,176 | 13.9% | 12.5% |
| Income (loss) from operations | 42,490 | 24,943 | 15,240 | 35,061 | 25,137 | 70.3% | 178.8% |
| Adjusted EBITDA | 52,052 | 41,114 | 32,123 | 59,162 | 43,311 | 26.6% | 62.0% |
| Adjusted EBITDA margin | 22% | 20% | 15% | 24% | 21% | 10.0% | 46.7% |
| Earnings per HK share (RMB) | 1.66 | 1.06 | 1.12 | 2.24 | -0.97 | 56.6% | 48.2% |
| Non-GAAP earnings per HK share (RMB) | 2.17 | 1.47 | 1.34 | 2.41 | 1.61 | 47.6% | 61.9% |
Alibaba’s share price went up by 5% once the results were released as the results beat analyst and market expectations.
Looking at its financial results, Alibaba delivered YoY growth in revenue of 13.9% as well as higher EBITDA margins and earnings per share.
1QFY24 income from operations increased 70.3% when compared to 1QFY23’s results. Adjusted EBITDA was 26.6% higher at RMB 52.1 billion.
With its strong operational performance as well as a robust balance sheet with a net cash position of US$47.6 billion, Alibaba has also continued to return value to shareholders via its US$40 billion share repurchase program. For 1QFY24, Alibaba repurchased 35.6 million ADSs for approximately US$3.1 billion, higher than the previous quarter where it repurchased another 21.5 million ADSs for approximately US$1.9 billion. This leaves approximately US$16.3 billion remaining under the current authorisation, effective through March 2025.
It is worth noting that should Alibaba raise outside capital in a substantial way in any in its 6 segments to fund its future growth strategy, it will strengthen the firepower of the entire Alibaba group and be in a position to return more value to existing investors.
Higher revenues were recorded YoY in all 6 segments. Note that due to the reorganisation announced last quarter, Alibaba has reallocated its revenue accordingly.
Revenue for 1QFY24 increased 14% YoY, a strong result as double digit percentage growth have been illusive for Alibaba in the past year. Of the 6 business segments, the only segment that did not record >10% revenue increase was the Cloud segment at 4% increase. Even the Digital Media and Entertainment Group which saw a massive goodwill impairment last year also recorded double digit percentage growth!
Due to the revenue growth, all 6 segments also recorded improved EBITA performance on a YoY basis.
3 Positive takeaways
1) Continued revenue growth and EBITA in the international e-commerce segment
Revenue in the international e-commerce segment grew 41% YoY as a result of strong order growth. This was much stronger than the 13% growth in FY23 and 29% growth in 4Q23.
Losses for the international e-commerce segment narrowed significantly from RMB 9 billion in FY23 and RMB 2.6 billion in 4Q23 to only RMB 0.4 billion in 1QFY24.
Lazada continued to improve monetization rate by offering more value-added services to merchants. As a result of improving monetization and operating efficiency, Lazada’s unit economics continued to improve compared to the same period last year. This is a copy of the Chinese e-commerce strategy where they focused on securing users first followed by monetisation.
It seems like this segment would likely breakeven very soon, justifying the substantial investments that Alibaba has injected into Lazada over the past years.
2) GMV increase in China e-commerce.
Alibaba saw increased revenues from higher GMV in Taobao and Tmall. Advertising revenues also increased.
After a decline last quarter and weakness in recent times, it was great for investors to know that there is still growth in the saturated Chinese e-commerce market.
For the month of June 2023, Taobao app grew average daily active users (DAU) by 6.5% YoY, resulting from effective user acquisition programs and improving retention of Taobao app users during the quarter. Importantly, the improvements in user acquisition and retention supported a successful 6.18 Shopping Festival that generated solid growth in order volume and average order value.
Alibaba is also seeing improvement from its new e-commerce offerings. Xianyu, a fun community and marketplace selling a variety of secondhand, recycled, for-rent and vintage products as well as interest-based content., continues to grow strongly with DAU up 18% YoY.
3) Cainiao does even better than before!
Cainiao is a case of investment in capital expenditures paying off. Cainiao recorded a 21% growth for the entire FY23. For 1Q24, Cainiao recorded a 34% increase, contributed primarily by the increase in revenue from international fulfilment solution services and domestic consumer logistics services.
This was primarily contributed increasing revenue per order from international fulfillment solution services as well as increasing demand for consumer logistics services.
In June 2023, Cainiao commenced operation of three new international sorting centres, bringing the total in operation to 18.
2 Negative Takeaways
1) No progress from restructuring?
In the last quarter, Alibaba announced that it will explore seeking external financing for Alibaba International Digital Commerce Business Group, explore an IPO for Cainiao Smart Logistics Group and execution of an IPO for Freshippo.
Alibaba also previously announced that it will also seek to allow full independence for its Cloud Intelligence Group in the next 12 months. This will be done by a full spin-off of the Cloud Intelligence Group via a stock dividend distribution to shareholders, with intention for it to become an independent publicly listed company.
There has been no substantial movement since except for the repurchase of Ant’s shares from investors at a substantial valuation decline. Wouldn’t this decreased valuation impact all other segments which are trying to either seek external financing or spin off at a favourable valuation?
2) Valuation decline in Ant Group
In July 2023, Ant Group sought to repurchase from all of its shareholders up to 7.6% of Ant’s equity interest at a valuation of about US$78 billion. This valuation was 70% lower than the US$300 billion valuation touted just before the IPO. A number of global investors including Singapore sovereign wealth fund GIC, Carlyle Group, Warburg Pincus and Canada Pension Plan Investment Board(CPPIB) are all opting out of Ant Group’s proposed share buyback.
However, a few money managers, including Fidelity Investments and T. Rowe Price Group, have agreed to sell their shares.
This repurchase was off the back of PRC regulators announced a RMB7.07 billion fine on Ant Group, which was not reflected in Alibaba’s share of results of Ant Group in 1Q24. This will be reflected in Alibaba’s results next quarter.
Previously, analysts have not be able to decide on Ant’s valuation and Ant’s attempt to buy back at this price should serve as a fresh market valuation since Ant’s botched IPO.
New energy unleashed..really?
Looking back in the last quarter, Alibaba believed that the restructuring would allow each segment to focus on driving growth amid the competitive landscape, and creating sustainable, long term value for the Alibaba Group shareholders and shared that the strong performance was due to new energy being unleashed.
Would a quarter of having 6 individual leaders managing 6 business segment make such a difference or was the bottom fundamentally in?
Regardless, we continue to opine that Alibaba’s strength and weaknesses have not changed much since the last quarter. The international commerce and Cainiao segments are still the better performers while the Cloud segment seem to be getting weaker each quarter.
The real spark is the strong Chinese e-commerce performance. This is a good first step for Alibaba as Chinese e-commerce is still the biggest contributor to the business and arguably the only mature segment driving profits. We view this as Alibaba fighting back amidst tough competition and we can only know for sure when all its other local competitors release their earnings.
In the end, for Alibaba to be really back in the game, they would need to carry out something big such as an IPO.