Alibaba had a successful investor day and a strong post-investor day one-month share price performance. When it looked like the worst could be over, the stock turned down and made new lows just before its FY2021 results were released, pressured by renewed Chinese government pressures on the internet platforms as the Chinese government ordered a fee cut for food delivery platform amidst broader global political tensions from the Russia-Ukraine conflict.
The share price spiked by 6% initially after the results were announced which could indicate that the company is starting to be undervalued fundamentally despite the continued pressures by the Chinese government and the weak macro environment but soon fell back and made further lows as the results were digested by the market combined with the weak broader market sentiments.
During Alibaba’s investor day, they presented their long term plans over 8 presentation decks, explaining their expansion plans and key focus markets, demonstrating to the investing community that despite facing pressures all around, it is focusing its resources to deliver growth in the years to come.
Alibaba announced its FY2021 results on 24th February 2022 and reiterated some of the plans shared during the investor day as part of its immediate term focus.
Summary of Alibaba’s financial results
| P&L in RMB’m | Dec’21 | Sep’21 | Jun’21 | Mar’21 | Dec’20 | Variance (%) | Variance (%) |
| EPS in RMB’$ | 3Q21 | 2Q21 | 1Q21 | 4Q20 | 3Q20 | 3Q21 vs 2Q21 | 3Q21 vs 3Q20 |
| Revenue | 242,580 | 200,690 | 205,740 | 187,395 | 221,084 | 21% | 10% |
| Income from operations | 7,068 | 15,006 | 30,847 | (7,663) | 49,002 | (53%) | (86%) |
| Adjusted EBITDA | 51,364 | 34,840 | 48,628 | 29,898 | 68,380 | 47% | (25%) |
| GAAP Net Income | 19,224 | 3,377 | 42,835 | (7,654) | 77,977 | 469% | (75%) |
| Non-GAAP Net Income | 44,624 | 28,524 | 43,441 | 26,216 | 59,207 | 56% | (25%) |
| Diluted EPS | 0.94 | 0.25 | 2.05 | (0.25) | 3.61 | 276% | (74%) |
| Non-GAAP diluted EPS | 2.11 | 1.40 | 2.08 | 1.29 | 2.75 | 51% | (23%) |
Inevitably, with a focus on the common prosperity theme, a slowing economy and tough YoY comparables, it would have been tough for Alibaba to record blockbuster YoY growth.
Looking at the summary of financial results, revenue grew by nearly 10% on a YoY basis. This is the slowest revenue growth recorded with revenue missing analyst expectations slightly.
Most segments performed decently with China commerce and the Digital media and entertainment segment underperforming. While the Cloud segment grew 20%, this was the slowest ever growth in recent years.
Adjusted EBITA was down 27%, primarily due to continued increased investments in growth initiatives such a Taobao Deals, Taocaicai (China commerce), Lazada (International commerce) and Ele.me (Local consumer services).
4 Positive Takeaways
Despite the lacklustre results, there were some positive news within their latest financial results:
- There was significant growth in Annual Active Consumers(AAC) with Taobao Deals being the main contributor to new user acquisition with a 39 million QoQ net add.
This resulted in an ending AAC of 280 million for Taobao Deals. Alibaba also had a high YoY retention rate of 86% on Taobao and Tmall. With its high retention rate, Alibaba will focus on deeper customer penetration to secure higher spend per consumer.
- International commerce hit 301 million AAC with a QoQ net addition of 16 million.
This was mainly contributed by Lazada with 52% YoY growth and Trendyol with 49% YoY order growth as theses two companies operated in countries and regions with higher growth potential.
Alibaba is also providing increased merchant support through incentives to drive increased service usage in a slowing consumption environment. Alibaba hopes that its near term spending will build long term rapport with customer and incentivise merchants to take up more value added service.
- Cainiao see good growth as it become the core of Alibaba’s international logistics strategy
Alibaba plans for Cainiao to be at the core of its international logistics strategy as Cainiao grew its revenue by 15% YoY and improved its gross margin, narrowing its adjusted loss margin to -1%. This was from a penetration of cross-border and international commerce retail businesses as well as the increase in revenue from its value-added services provided to merchants.
- Alibaba vows to focus on creating shareholder value with its cash hoard
Alibaba acknowledge its cash hoard on hand and will focus on creating shareholder value. Toby Xu, the new CFO commented that the current share price does not reflect the fundamentals of the company and will continue share repurchases.
Alibaba repurchased 80.7 million shares for a total of US$1.4 billion in 3Q21 and 337.5 million shares in YTD9M21. This represented 51% of its US$15 billion share repurchase program which expires by December 2022 and it is likely that Alibaba will fully utilise its share repurchase program.
As Alibaba’s financial year end is 31 March 2022, it may announce a renewal of its share repurchase program for the next financial year.
4 Negative Takeaways
We can’t ignore the elephant in the room; why is “Alibaba’s share price dropping”? Here’re 4 negative takeaways from their financial results that could have contributed to the fall (along side regulations and macroeconomic reasons).
- Poor performance from Digital Media and Entertainment segment erodes value
RMB 25.1 billion impairment of the Digital Media and Entertainment segment, which mainly comprises goodwill recorded from the Youku acquisition. This segment’s growth has been lacklustre with a YoY growth of 3%. Despite its growth, it was also unable to meaningfully reduce its loss. Alibaba has also faced pressures from the Chinese government to shed its media assets.
- Significant slowing in growth of Cloud segment
Alibaba Cloud’s growth trajectory slowed significantly with a decline to both their QoQ Revenue and adjusted EBITA.
While it grew 20% YoY and added 2 Data Centres in Asia Pacific, 1 in South Korea and 1 in Thailand, there was slowing demand in the demand by the Internet industry on an overall basis with a larger impact coming from subsectors of the Internet industry such as online entertainment and education.
Alibaba expects future growth in other industries with lower adoption rate such as Telecom, Energy and Healthcare.
- Slowing growth of China e-commerce segment
Despite AAC growth in Taobao deals, as core China e-commerce AAC declined, China e-commerce growth slowed significantly to only a 7% YoY growth. This was due to slowing macro conditions and competition in the China e-commerce market. Key segments such as FMCG, electronics and apparels grew at much slower rates. Due to the COVID-19 situation and the continued regulatory crackdown across various industries, Alibaba was also unable to forecast the recovery or acceleration in growth.
In addition, AliExpress only recorded single digit revenue growth as it was negatively affected by VAT levied in Europe on low value cross border parcels.
- Increase in cost over all line items
Continued reinvestment and spending on user growth led to cost increase across all lines and an adjusted EBITDA decrease of 25%.
This has been a constant theme since the commencement of the tech crackdown in November 2020 coupled with the continued zero-COVID policy in China and competition by close rivals such as JD.com. As Alibaba is unable to forecast a recovery trajectory, they are also unable to forecast when such spend will slow or cease.
Closing statement
Since the start of the tech clamp down in 2021, Investors have gone through numerous upheavals and false dawns. While there are still pressures on Alibaba and other Internet platforms, Alibaba has placed common prosperity theme at the centre of its growth plans and focused on long term growth in sectors, especially where it sees opportunities that align with this common prosperity theme.
Alibaba’s FY2021 results were mixed, with some positives amidst many negatives. Growth slowed across key segments with expenditure increasing as part of its plan to invest in securing future growth.
Looking ahead, Alibaba will focus on supporting China’s digital economy, improving quality and growing scale with a focus on the SMEs. It will also focus on value adding and retaining its merchant. While Alibaba’s share price may not have seen the bottom yet, with its cash on hand, it will also continue its share buyback program and this may serve to stem the fall of its share price.
