Alibaba Quarterly Report: revenue began to stagnate, profits continued to fall

Квартальный отчет Alibaba: выручка начала стагнировать, прибыль продолжила падать

Alibaba Quarterly Report: revenue began to stagnate, profits continued to fall

Alibaba Quarterly Report: revenue began to stagnate, profits continued to fall

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Alibaba Quarterly Report: revenue began to stagnate, profits continued to fall

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Situation with Chinese retail

For the first time, Alibaba's quarterly revenue did not grow year-on-year and remained the same - 206 billion yuan (31 billion dollars). All because of problems in Chinese retail. This is the main business, which gives 69% all proceeds. In the report, Alibaba calls it China commerce, and there are three components to this.

Customer management revenue (CMR) – advertising and commission income, which generate retail sites like Taobao and Tmall. This is the first segment in terms of revenue..

Indicators: revenue - 72 billion yuan (10,8 billion dollars), year-on-year — minus 10%, share of total revenue — 35%.

Until recently, Alibaba's online retail grew by tens of percent., and now it's starting to shrink. The company itself blamed COVID-19 for everything.. Due to quarantine, there were disruptions in logistics, and sellers were unable to ship some of the orders.

In such an uncertain situation, consumers have also begun to cut costs.. For example, on second-party goods such as clothing or electronics. This is confirmed by macrostatistics.. From March to May in China there was a peak incidence, and retail sales fell sharply.

Alibaba Quarterly Report: revenue began to stagnate, profits continued to fall

Alibaba Quarterly Report: revenue began to stagnate, profits continued to fall

Looks like, COVID-19 Really Affected Alibaba's Revenue. But the problem here is different.: CMR revenue began to stagnate a year ago, when there was no quarantine.

Then the company referred to macroeconomic uncertainty and high competition in online retail.. Reasons may vary, but the conclusion is one: Alibaba has problems with its core business.

Alibaba Quarterly Report: revenue began to stagnate, profits continued to fall

Direct sales and others - income, which is generated by retail hypermarkets like Sun Art and Tmall Supermarket. This is the second largest segment by revenue, which is almost equal to the first.

Indicators: revenue - 65 billion yuan (9,7 billion dollars), year to year — plus 8%, share of total revenue — 32%.

In recent years, Alibaba has been actively developing hypermarket chains.: absorbed the stores of competitors and opened its own. Due to the low base effect, this business grew rapidly, but now it's started to slow down.. Quarantine has also had a bad impact on recent results..

Now the revenues of hypermarkets occupy an increasing share of the total revenue of Alibaba. This is problem: offline retail — low-margin business. Over the past three years, the company's gross margin has fallen from 48 to 48 37%.

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Alibaba Quarterly Report: revenue began to stagnate, profits continued to fall

Alibaba Quarterly Report: revenue began to stagnate, profits continued to fall

Commerce wholesale - income, which is generated by wholesale platforms like 1688. It's fast growing, but the smallest segment by revenue.

Indicators: revenue — 5 billion yuan (0,7 billion dollars), year to year — plus 26%, share of total revenue — 2%.

Cloud business and other areas

And that's income., which generates Alibaba cloud business.

Indicators: revenue — 18 billion yuan (2,6 billion dollars), year to year — plus 10%, share of total revenue — 9%.

With this business, Alibaba is also not all smooth sailing.. This is strange: in the cloud market, Alibaba occupies a small share, but grows slower than giants like Amazon and Microsoft. They added 30-50% in the last quarter..

Probably, it's all about the Chinese residence permit. Here the state puts pressure on business, in which Alibaba clients work. For example, companies from the field of additional education. Overseas customers may also opt out of Alibaba's cloud services for political reasons.

Alibaba has many more segments. They take a small share of revenue., therefore, their results are presented briefly in the general table.

Alibaba Quarterly Report: revenue began to stagnate, profits continued to fall

Revenue by segment

DescriptionOf all proceedsYear-on-year
China commerceRetail in China69%−1%
International commerceRetail abroad7%+2%
Local consumer servicesFood & Travel Delivery5%+5%
CainiaoLogistics services6%+5%
CloudCloud services9%+10%
digital mediumGaming, audio- and video services4%−10%
InnovationExperimental developments0%−30%
TotalTotal100%0%

What's with profit

Compared to last year, Alibaba's net profit decreased by 50%, from 45 to 23 billion yuan (3,4 billion dollars). Profits were badly affected by the fall in revenue and gross margin.

In its reports, Alibaba does not focus on net profit, a on adjusted EBITA. This is operating profit., which was adjusted to take into account two non-monetary items: bonuses to employees in the form of shares and depreciation of non-digital assets. Adjusted EBITA helps evaluate the results of the business itself, not accounting successes.

Compared to last year, adjusted EBITA fell by 18%, up to 34 billion yuan (5,1 billion dollars). The reasons are the same: falling revenue and margins. Alibaba reported, which in the future will optimize operating costs and expenses for the promotion of their services. This could slow down the drop in profits., but it is still difficult to believe in some rapid growth..

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As for alibaba's adjusted EBITA sectors, it's simple.: only the main business gives profit, i.e. Chinese retail. All other segments are unprofitable or balancing on the verge.

Alibaba Quarterly Report: revenue began to stagnate, profits continued to fall

Adjusted EBITA by Segment, billion yuan

DescriptionIndicatorYear-on-year
China commerceRetail in China43,6−14%
International commerceRetail abroad−1,6−52%
Local consumer servicesFood & Travel Delivery−3,0+36%
CainiaoLogistics services−0,2−27%
CloudCloud services0,2−27%
digital mediumGaming, audio- and video services−0,6−50%
InnovationExperimental developments−1,9−32%
UnallocatedOther−2,1−27%
TotalTotal34,4−18%

What about stocks

4 august ADR Alibaba on the American stock exchange grew by 1,8%, because the financial results were not so bad, as feared. But the positivity was short-lived., And 5 numbers in the ADR premarket fell by 3,3%, to 94 $.

Now the securities are traded at the level of IPO at the price of 2014, and there are no corporate reasons for growth yet. Looks like, stocks can only bounce on some market-wide news. For example, China will start assuring investors again, that will no longer put pressure on local technology companies. Or the central bank will start a soft stimulus policy, which will support all stock market country.

Alibaba Quarterly Report: revenue began to stagnate, profits continued to fall

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