On the evening of November 18, Alibaba announced its financial results for the second quarter of fiscal year 2022 (the natural year is the third quarter of 2021) before the US stock market. The report showed that Alibaba’s revenue for the second fiscal quarter was 200.69 billion yuan, up 29% year-on-year and below market expectations of 206.17 billion yuan; adjusted net profit was 28.52 billion yuan, down 39% year-on-year.
Revenue growth of 30%, but net profit fell 40%. The capital market reacted quickly to Alibaba’s performance: at press time, Alibaba’s U.S. share price once plunged 9.69% to $145.93 per share, back to the 2019 share price level, and its current market value fell below $400 billion.
The summer season, where Alibaba’s second fiscal quarter is located, is a traditionally slow season for e-commerce, and the growth rate of the broader e-commerce market has slowed due to the repeated impact of extreme weather and epidemics.
Affected by this, Alibaba de-emphasized the growth rate. In its fiscal second quarter, Alibaba announced that it was voluntarily lowering its revenue expectations, with total revenue growth expected to be 20% to 23% year-over-year in fiscal 2022. Alibaba said it chose to add a focus on the future and put more emphasis on taking social responsibility.
When looking at operating profit only, Alibaba performed at 15.006 billion yuan for the quarter, up 10% year-over-year, mainly due to a 15.690 billion yuan decline in the cost of equity incentives granted to employees by the Ant Group.
For the year-over-year decrease in net profit, Alibaba said it was due to a net loss on the value of the company’s equity investments in publicly traded companies (compared to a net gain in the same quarter last year), as well as increased investment in key strategic areas to support merchant initiatives. Alibaba’s investment in Taote, local lifestyle services, community commerce platforms and Lazada increased by RMB 12.575 billion year-over-year in the quarter.
What really worries the capital markets is whether Alibaba’s big investment in diversified new businesses will reap results.
In the post-earnings conference call, the first question management took was about the progress of Taocai’s business and when it would be ready for commercial realization. Currently, community e-commerce, local life, new retail, and even Alibaba Cloud and Cainiao, are all still burning money, and investors cannot see a specific time point for cash conversion.
In the core e-commerce segment, Alibaba reported revenue of 171.17 billion yuan for the quarter, up 31% year-over-year. Growth slowed from previous quarters, for which Alibaba attributed the main reason to the performance of the general retail environment in China. Alibaba’s gross merchandise transaction (GMV) growth in China’s retail market declined to single digits in the second fiscal quarter, which Alibaba said was mainly due to slower market conditions and more players in China’s e-commerce marketplace. By product category, GMV growth for physical goods in the apparel and accessories categories slowed, but growth in product categories such as consumer electronics and home remained strong.
On the call, Alibaba executives responded to the question of how much the slowdown in the general environment and external competition have affected each other, saying, “It is difficult to quantify the different impacts, but both factors are something Alibaba should consider, whether it is the general environment or increased external competition. As the largest e-commerce player in the market today, Alibaba’s e-commerce performance is undoubtedly in line with the performance of the broader environment in China, which has slowed more severely than expected and has led to lower growth rates in Alibaba’s underlying revenue.”
Alibaba’s core e-commerce revenue is primarily derived from Taobao and Tmall. At present, with Alibaba’s volume, it is not easy to maintain a growth rate of over 30% in core e-commerce revenue. In the face of a further slowdown in e-commerce growth in the future, Alibaba is investing in a “multi-terminal strategy” to develop APPs other than Taobao to form an APP matrix based on the preferences of different users’ usage scenarios.
In this regard, Alibaba executives further emphasized that Alibaba is not cashing in through traffic, but creating value by investing in infrastructure. There is no specific cashing-in plan to share, but the goal is to keep consumers and merchants in the Alibaba system with a high enough retention rate to increase cashing-in. The future goal for Alibaba is to exceed 1 billion domestic consumers and to use multiple APP strategies to improve user stickiness and engagement.
The effect of Alibaba’s investment is directly evident in the increase in the number of consumers. In the second fiscal quarter, Alibaba eco global annual active consumers reached approximately 1.24 billion, a net increase of 62 million in a single quarter.
In the innovation business area, Alibaba highlighted the progress of Taote (Taobao Special Edition). This is the largest incremental business change in the Alibaba family in the past year. Taote’s progress in the sink market has increased Alibaba’s incremental users and user activity, with Taote now exceeding 240 million annual active consumers and already accounting for 50% of the exclusive DUA.
In the community group-buying space, Taote is now operating in close to 200 cities, with GMV growth of more than 150% YoY. However, Alibaba executives stressed that at present, Tao Cai Cai is not pursuing absolute growth rate and growth share, and is still in the investment stage.
By revenue structure, globalization and cloud computing business contributed a higher share, especially Alibaba cloud business performed solidly. Alibaba’s domestic commercial segment grew 31% year-over-year in the second fiscal quarter, its globalization business increased 41% year-over-year, and its enterprise digitalization and services business based on Alibaba Cloud and Cainiao grew 32% year-over-year, with revenue from the cloud computing business increasing 33% year-over-year to RMB 20.07 billion, making it profitable for the fourth consecutive quarter.
Recently, China’s big Internet companies have entered the earnings reporting period intensively, and the real figures tell the market that the Internet industry is saying goodbye to the high growth period. In addition to Alibaba’s net profit decline, Jingdong’s earnings report released today also showed that the company’s net loss in the third quarter turned from profit to loss by 2.8 billion yuan, and advertising revenue-based companies such as Baidu also suffered a growth stall. In the foreseeable future, China’s big Internet companies will adjust their strategies to cope with the gradual arrival of the gear shift. Source