Grinding at the bottom for too long, BABA is up to a real fight this time!

Although the recent market has been bleak, Tencent, the leader of Chinese concept stocks, has previously handed in a satisfactory answer, and now the pressure has all been transferred to Alibaba. However, though this quarter's result is not comforting, what is important is the "sincerity and determination" that Alibaba has released to release shareholder value:

Alibaba has detailed the independent split of various businesses and the corresponding independent equity design, even IPO planning progress; and has also established a four-person capital management team responsible for releasing shareholder value, which is rare. In the face of long-term grinding of market value, Alibaba has announced to the outside world through this series of actions: "I am going to fight!"

Regarding to the result itself, there is not much difference in routine compared to the previous two quarters, as income was still weak and profits were strong. Overall, the year-on-year revenue is 2%, slightly lower than market expectations, but the profit is better than most of the expectations seen by Dolphin Analyst on the market (22-24 billion yuan), and the operating profit without considering equity incentives and amortization expenses is 25.3 billion yuan. However, there are also "changes" in the routine:

1. Two key segments: painful grinding, but "change" is imminent

a. Taobao Tmall is still weak, but the turning point has arrived.

a. In the first quarter, Taobao Tmall's revenue (CMR, including commissions and advertising) shrank by 5% year-on-year, still slightly worse than market expectations.

b. The most critical indicator of Taotian in the current stage-Taobao Tmall GMV (excluding unpaid orders) has a year-on-year decline of about 5%, and because of the recovery of fashion, accessories, and health categories, Taotian's GMV in March has turned positive.

c. Two major signals: a. The revenue growth rate and GMV growth rate of Taotian have tended to be synchronized, and Douyin's invasion of Taobao seems to be finally coming to an end, but this still needs to be observed continuously. Alibaba's high-margin beauty and clothing turning point has finally arrived, and the overall GMV of Taotian in the June quarter is almost nailed on the board, and the corresponding Taotian revenue is likely to grow positively.

d. Alibaba Cloud: miserable Although the adjusted profit is still positive, the quarterly revenue in March fell by 2% year-on-year, only 24.6 billion yuan. Alibaba's explanation is mainly because the deployment of hybrid cloud was affected by the epidemic; at the same time as announcing independent financing and listing, Alibaba Cloud recently announced a 40% price reduction, indicating that Alibaba Cloud will return to the "fight for growth" route in the future.

2. the zoo family: work hard to be self-reliant, and international business is the highlight

The overall characteristics of other businesses are still divided into two categories:

a. Honor students: increase revenue and reduce losses

The typical business in this camp this quarter is international commerce business, the crazy realization of SEA Shopee should have given Lazada a lot of room to bounce back. In addition, it seems that AliExpress has pushed a TEMU competitor-Choice, which is interesting.

The revenue of local life this quarter increased by 20% year-on-year, which is also good, and the loss is also more than ten billion yuan less than the same period last year, and the performance is also good; in addition, Cainiao performed well this quarter, with growth and reduced losses, but this is not new information. The first two quarters are at this level.

b. Bottom-up animals: Only cost reduction and efficiency improvement

Entertainment segment is still in this category, and its revenue has not improved significantly compared to the same period last year, but the loss has decreased slightly. However, recently, Youku seems to have revived a bit with a series of popular dramas.

Innovative business has significantly reduced losses, and combined with the absolute value of R&D expenses significantly reduced, it should be due to R&D layoffs and cost reduction.

Dolphin Analyst's overall view:

Compared with Tencent and Baidu's obvious improvement in revenue growth and margin repair, Alibaba's answer this time is not outstanding, still beating profit estimates but with weak revenue. However, from the marginal information of Taotian's GMV, it can be roughly inferred that the turning point of the Taotian cycle centered on "going out for beauty" has arrived, and the turning point of competition erosion seems to be vaguely visible.

But as far as this quarter's performance is concerned, they no longer suffice much attention. Let's look forward to Alibaba's continuous capital operation in releasing shareholder value, waiting for Taotian's GMV and revenue to gradually turn around, coupled with Alibaba's capital operation (buyback, sub-business spin-off and listing, etc.). When the market gradually turns to SOTP valuation, with Alibaba's cash on hand (50 billion US dollars) + buyback (19.5 billion quota, as of March 2025) + core business support, there is nothing to worry about Alibaba' at current valuation.

The following is a detailed analysis:

1. Independent financing, spin-off listing, and "valuation pulling" team... Alibaba is fighting!

Therefore, Dolphin Analyst will start with the most important point here. Before the company announced the structural adjustment, Dolphin Analyst had already smelled the taste of all the animals in Alibaba Zoo that would have to rely on their own efforts for independent financing and listing from the performance of that season.

Based on this, Dolphin Analyst believes that Alibaba's stock price in the future will come from two marginal variables: 1) the progress of other asset spin-offs and capital listings outside of Taobao and Tmall; 2) the progress of Taotian's GMV turning positive, and further turning into revenue growth. The most critical thing is to see the stabilization of competition erosion.

And by this quarter, the first thing has already started to spread like wildfire. Alibaba Group has now clearly delineated six business groups:

It has clarified that Taobao and Tmall are 100% wholly-owned by the group, and other business groups will seek external financing;

The core asset Alibaba Cloud will be spun off and independently financed, and the goal is to seek a listing on the upper market;

Cainiao aims to complete the listing plan within 12-18 months;

Hema will be listed within 6-12 months;

5. The key point is that Alibaba has also established a capital management committee, whose task is to enhance shareholder value. It can be expected that in addition to independent financing and spin-off listing to enhance valuation, various capital market operations such as buybacks will also be decided by this team. It is rare to establish a "valuation pulling" team, which shows Alibaba's great determination.

2. Has the core retail seen the darkness before dawn?

1. Is Taobao Tmall still sliding? But after the bottom is reached, it will go up

Although this season is the end of the fiscal year, Alibaba has not yet released any relevant data such as GMV and user numbers, so we can only speculate on Alibaba's business situation based on financial indicators. First of all, the growth of GMV and CMR, which are the most core concerns of Alibaba, is still the focus.

In this quarter, the growth rate of domestic retail customer management revenue (CMR) was -5%, with revenue of 60.3 billion yuan, lower than the market's expected 61.4 billion yuan. With the gradual disappearance of the impact of the epidemic in the first quarter, the online physical growth rate, as re-stated by the National Bureau of Statistics, has accelerated to 7.3% on a month-on-month basis. Whether it is from the perspective of expectation difference or compared with the overall market, the growth of Taobao and Tmall platforms is difficult to satisfy.

Combined with recent news disclosures, it can also be seen that the erosion of Taobao and Tmall by live e-commerce is still continuing. The core pain point of market attention, the loss of market share, has not yet been reversed.

However, the slightly comforting news is that the contraction of GMV for Taobao and Tmall (excluding unpaid orders) this season is also in the "middle range", compared with the 5% decline in CMR, it can be seen that the gap between CMR and GMV has been basically eliminated.

The company also disclosed that the GMV growth rate of Taobao and Tmall in March has turned positive, and looking forward, with the recovery of domestic residents' travel and tourism, the sales of optional products such as clothing have also begun to rebound. From January to April, the growth rate of online retail for clothing and other goods has improved significantly from 8.6% on a month-on-month basis to 13.5%.

Therefore, as early as the second quarter of the natural year, there is a good chance that the GMV and even CMR of Taobao and Tmall will turn positive.

2. Self-operated retail: good news? No performance, but capital markets do

In addition to the core Taobao and Tmall businesses in Core-core, Alibaba's domestic heavy asset retail business (including Hema, Gaoxin Retail, Intime, cat super self-operated and Ali Health, etc.), the revenue in this quarter was 71.8 billion yuan, a year-on-year decrease of 1%. Although the business has experienced negative growth for the first time, considering the high base of last year and the fact that residents' demand for instant retail of fresh products is no longer so urgent after being released, the performance of this quarter is poor but the market has also expected it.

As a follow-up to this round of Alibaba's component reform, the most independent business, Hema, is in the process of IPO and is expected to be completed within 6-12 months. As a spin-off listing, which is currently the main way for Alibaba to release the value of the company, it has finally gone from "just hearing the wind" to actually landing. It helps to clarify the pricing of a group of assets under Alibaba from chaos to clear pricing by the secondary market.

3. After becoming independent, international retail began to exert its strength

There is both bad news and good news. Earlier, there were rumors in the market that when Southeast Asian e-commerce leader SEA basically gave up growth targets to improve profitability, Alibaba's subsidiary Lazarda began to exert its strength and performed well.

This quarter's financial report shows that the revenue growth rate of Alibaba's international business retail business has increased significantly to 41% year-on-year, and the revenue scale has also reached 14 billion. Among them, the order volume of the Lazada platform has increased by double digits, and the overall order growth of platforms such as AliExpress and Trendyol has also reached 15%. It can be seen that after Jiang Fan led the international team to operate independently, the combat effectiveness has obviously rebounded.

4. Going out for fun, local life also needs to be repaired?

The revenue of local life services (to home: Ele.me; to store: Gaode, Fliggy) this quarter was 12.5 billion, and the year-on-year growth rate increased significantly to 20%. Benefiting from the recovery of travel and offline activities after the opening, Alibaba's local sector, even if it cannot shake the position of the leading vertical sectors such as Meituan, Didi, and Ctrip, can also be repaired under the overall industry repair.

5. Cainiao also wants to fly solo

As the second-ranked independent listing sector within the group, Cainiao Logistics achieved revenue of 13.6 billion this quarter, and the year-on-year growth rate slipped to 18%. Although the current growth seems to be slowing down, this is mainly because the base period of Cainiao's accounting model adjustment (from 4P logistics to 1P and 3P logistics) has arrived, and the actual growth rate slowdown should not be too obvious, especially the current international business growth rate is good. Moreover, under the extremely mature business model of 3P logistics, after Cainiao's independent listing, there is also hope to undertake more external customer needs.

6. When Taobao and Tmall are weak, others have to rely on themselves

In terms of profit, the core business (including the above-mentioned segments) has a profit close to 31.7 billion after excluding the impact of equity incentives and amortization expenses (adjusted EBITA), far exceeding last year's 23.2 billion and the market's expectation of about 26 billion. The profit margin also increased significantly from 13% to 17.5% year-on-year. Although revenue growth is still relatively weak, cost reduction and efficiency improvement and profit release are still in progress.

Looking at the details, the EBITA profit margin of all segments has increased year-on-year. Therefore, although the proportion of CMR revenue with the highest gross profit margin has dropped to 29% of total revenue, and the proportion of low-margin revenue has increased passively, the overall profit margin has still improved.

At the same time, although the profit margin of all segments except Chinese business is still in the negative range, after independent operation, Dolphin Analyst believes that all segments will achieve breakeven as soon as possible. Because the consequence of not achieving this is "death" (Taotian Group will no longer provide financial support to sister companies).

2. Continue to reduce costs, increase profits without increasing revenue

Under the background of each loss-making business line looking at self-financing, and each segment striving to reduce costs and improve efficiency, Alibaba achieved a gross profit of 70.6 billion this quarter, and the gross profit margin increased from 32% to 34% year-on-year. Although the increase seems small, the total gross profit increased by 10% under the background of almost zero revenue growth, and the growth rate continued to improve. It achieved the goal of increasing profits without increasing revenue.

In terms of expenses, Alibaba is still trying to save money. Except for management expenses, other expenses have decreased year-on-year:

Sales and marketing expenses were 24.1 billion, a decrease of 12% year-on-year, and research and development expenses were also reduced by 11% to 10.9 billion.

Only administrative expenses increased by 16.5% year-on-year. A total of 10.3 billion was spent this quarter, even higher than the previous quarter. Although Alibaba continued to lay off about 4,500 people this quarter, severance pay may be the reason for the continued increase in management expenses in recent quarters. The scale of management expenses has continued to expand to the highest level in history. Dolphin Analyst suspects that although the independence of each business group helps to improve combat effectiveness and management efficiency, it will also lead to each subsidiary having to build its own middle and back office, thereby pushing up management expenses.

But even if management expenses are expanding wildly, the overall three expense ratio is still declining.

Therefore, although the growth of Taotian platform has not yet shown signs of improvement, with the joint efforts of all sectors, the most concerned profit indicator in the market - adjusted EBITA profit has reached 25.3 billion, almost 10 billion more than the same period last year of 15.8 billion.

Adjusted net profit has reached 27.4 billion, a year-on-year increase of more than 38%, significantly higher than the market's expected 25 billion.

3. How are other sectors performing besides core retail?

1. Alibaba Cloud: Eye-catching negative growth

As the most concerned star sector outside the group's business sector, Alibaba Cloud's revenue growth rate is still declining this quarter, and the final year-on-year shrinkage of -2% is still quite eye-catching.

The company's explanation for the revenue decline is that the deployment of hybrid cloud was affected by the Spring Festival and the spread of the epidemic in the first quarter, and the impact of losing Tiktok, a major customer, is still continuing.

At the same time, from the perspective of the rapid growth of cloud service revenue of domestic operators, we need to be patient to wait for when Alibaba Cloud can rebound.

However, from the perspective of profit, although revenue is declining, Alibaba Cloud's EBITA is still growing both year-on-year and quarter-on-quarter due to the continuous improvement of profit margin.

3. Can Alibaba Entertainment rebound with the opening of cinemas?

With domestic residents returning to cinemas, Alibaba Entertainment's revenue increased by 3% year-on-year to 8.3 billion this quarter. Although the EBITA loss rate in the entertainment sector at the seasonal low point is still 13%, the actual year-on-year improvement has exceeded 10%. Similarly, with the continued recovery of domestic residents' outdoor activities and entertainment, Alibaba Entertainment is likely to continue to improve.

4. Will Ant's profits stabilize?

This quarter, Alibaba's equity income from Ant was RMB 3.18 billion, although the year-on-year decline was still as high as 56%, the absolute scale has returned to the level of the first quarter of this fiscal year. Dolphin Analyst believes that there have been rumors in the market since the end of last year that the supervision of Ant Group has entered a normal stage. Although there is no news yet on when Ant can obtain a financial control license or even relist. But from the current trend, the repair of Ant's performance may also be on the way under regular supervision.

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Please refer to Dolphin Analyst's previous articles:

Earnings Season

February 24, 2023 Conference Call Summary: "Someone is always subsidizing, but I haven't seen anyone post a change in the situation."

February 24, 2023 Earnings Review: "Has Alibaba's 'Deep Squat' Come and Gone, and Is the 'Jump' Still Far Away?"

November 18, 2022 Earnings Interpretation "Alibaba: Exploding Losses Are Just Paper Tigers, and the 'Deadlock of Competition' Is the Fatal Blow."

November 18, 2022 Earnings Conference Call "Alibaba: 'Actively Preparing for the End of the Epidemic.'"

August 5, 2022 Earnings Interpretation "Alibaba: Tightening Its Belt and Strengthening Its Bones, 'Risking Its Life to Make Money.'"

August 5, 2022 Earnings Conference Call "Without User Growth, Alibaba Focuses on Wallet Share, Seeking Quality and Efficiency (Conference Call Summary)"

May 26, 2022 Conference Call: "Recovery Requires Sustainable Management and User Expectations."

May 26, 2022 Earnings Review: "After a 70% Plunge, Has Alibaba Finally Seen the Light?"

February 25, 2022 Conference Call: "Six Thousand Words Summary: Alibaba Underestimated, Will Do Buybacks and Spin-Offs Besides Hard Work."

February 24, 2022 Earnings Review: "Is Alibaba Still in the Midst of a Crisis? Don't Pick on Such a Cheap Price." On November 18, 2021, the financial report review "Has the Mobile Internet Era Belonging to Alibaba Already Ended?" and the phone meeting "Behind the Deep Dive, Alibaba Struggles to Explain Its Grand Vision (Summary)" were held.

On August 4, 2021, the phone meeting "After Listening to Alibaba's Meeting, E-commerce May Really Need to Adjust for a While" was held.

On August 3, 2021, the financial report review "Alibaba: Firepower Still Strong, Results 'Disappointing'" was held.

In-depth:

On January 19, 2023, "Ant Goes Ashore, Zhang Yong Goes to the Cloud, How Far is Alibaba from Revaluation?" was held.

On January 18, 2023, "The Final Battle of E-commerce, Can Taobao Compete with Douyin?" was held.

On January 18, 2023, "The Offensive and Defensive Situation Has Been Greatly Reversed, 'Alibaba, Ctrip, Didi' Are Going to Counterattack" was held.

On September 30, 2022, "Pinduoduo & Vipshop: Your Poor Days Are Good Days" was held.

On September 22, 2022, "Alibaba, Meituan, Pinduoduo, Have They All Given Up? Still Need to Have Great Fortune" was held.

On April 27, 2022, "Alibaba vs Pinduoduo: After the Bloody Battle, Only Coexistence is Left?" was held. 2022 April 13th "Towards the cycle of 'decay', how much value is left for Alibaba and Tencent?"

2021 September 22nd "Did Alibaba, Meituan, and Pinduoduo really gain any real advantages after the e-commerce traffic war?"

2021 April 16th "2021, the 'total war' of internet e-commerce"

Hot Topics:

2022 August 12th "The relationship between SoftBank and Alibaba has come to an end, and they are now going their separate ways?"

2022 February 16th "After the change of baton in the B and C businesses, the new Alibaba has finally taken the 'difficult but correct' step"

2022 January 17th "Is the 'winter' of retail particularly cold?"

2021 November 29th "Pay attention to this quiet change about Alibaba!"

2021 December 15th "The peak month during the peak season, online retail is only 'so-so'"

2021 November 12th "Another year of Double Eleven, but the protagonist has changed"

2021 October 18th "August was too bad due to the epidemic, and online retail was only passable in September"

2021 September 22nd "The true aggregation entrance of Taobao Live has arrived" 2021 September 16th "Updating the Community Buying Status through TaocaiCai"

2021 August 9th "Talking about the Organizational Vitality of Internet Giants"