Saturday, 2024 July 20

Alibaba’s financial report highlights necessary moves for tech giant

On May 26, Alibaba, China’s largest e-commerce company, released its first financial report after undergoing significant organizational restructuring.

Using non-GAAP standards, Alibaba’s revenue was RMB 204.05 billion (USD 32.2 billion) in Q4 of the 2022 financial year, a year-on-year increase of 9%. Its net profit was RMB 19.8 billion (USD 3.12 billion), with a year-on-year decrease of 24%. These results were close to those of Tencent, which reported a 23% decrease in net profit in the same quarter.

Alibaba has managed to grow its revenue, but a slowdown was already priced in by the market. According to a research report published by China International Capital Corporation (CICC) at the beginning of this year, Alibaba will likely perform poorly in the near future, as it has been difficult for the company to identify major industrial business opportunities.

The total retail sales of consumer goods in China increased by 3.3% year-on-year in Q1 2022. When pricing factors are taken out of consideration, the total retail sales of consumer goods in Q1 increased by only 1.3% year-on-year. These statistics have a strong impact on Alibaba Group, as its business relies heavily on retail sales of social consumer goods.

Now, Alibaba is adjusting its business on its own terms.

China-based online business news provider Hefan Finance reported that Tencent only began to turn a profit when the revenue of its financial technology and enterprise service businesses, with their low gross profit margins, surpassed the revenue from its game business. Now, Alibaba is in a similar position.

The revenue of Alibaba’s commercial retail business in China was RMB 135.947 billion in Q1, with a year-on-year increase of 7%. This included RMB 63.421 billion in revenue from its customer management business, roughly the same as last year, drawing chiefly from Taobao and Tmall advertising fees and commission. Meanwhile, revenue from direct sales and other businesses was RMB 72.526 billion, with a year-on-year increase of 14%, mainly from Sun Art Retail, Tmall Supermarket, and Freshippo (also known as Hema). This is similar to’s operational model.

Alibaba’s revenue from its customer management business is similar to last year’s, with the pandemic keeping conditions constant. For the quarter ending in March, Taobao and Tmall recorded only single-digit year-on-year GMV growth. The GMV for January and February, remained roughly the same as the same period last year.

Direct sales are becoming a new growth point for Alibaba’s retail business in China. Although the revenue of direct sales is high, the gross profit margin is far lower than in advertising.

According to the company’s financial reports, Alibaba’s operating costs in this quarter increased to 68% of revenue from last year’s 66% because of an increase in Freshippo and Tmall Supermarket’s direct sales, leading to an overall bump in the proportion of inventory costs as a fraction of revenue.

Unlike Tencent, China’s largest internet company, which invested more in enterprise services to spur growth, Alibaba’s key e-commerce segment developed slowly and was followed by the launch of Taobao Sales and community groceries marketplace Taocaicai to seek new avenues of future growth. This means that Alibaba will repeat the process of high investment and low returns, and as a result, profits will drop.

The EBITA of the Chinese commercial sector in Q1 decreased to RMB 32.149 billion from RMB 39.5 billion in the same period last year. The EBITA decreased by 19% year-on-year due to the company’s increased investment in Taocaicai and Taobao Sales, the continuous impact of the pandemic, and the loss of Sun Art’s retail assets.

Although Alibaba faces many immediate hurdles, the capital market is still optimistic about the company’s prospects.

In mid-May, investment bank JPMorgan raised its ratings for Alibaba, Tencent, Meituan,, and other Chinese internet technology companies. Among them, Alibaba’s rating was raised to “strong buy,” and the target price for Alibaba’s stock in Hong Kong was increased from HKD 75 to HKD 130. Meanwhile, the target price of Alibaba in the US was increased from USD 75 to USD 130.

After the release of the Q4 fiscal year results for 2022, the share price of Alibaba closed at USD 94.48, an increase of nearly 15%. This may reflect the bullish sentiment of investors, but the financial situation of Alibaba has not improved. However, it should be noted that the situation has not worsened.

All about e-commerce

The COVID-19 pandemic has had a significant impact on Alibaba’s e-commerce business, not only in terms of revenue, but also in terms of revenue structure.

Taobao and Tmall focus on selling apparel and cosmetics. However, due to the drop in consumption, the continuous growth of apparel and cosmetics sales has been limited. On the other hand, these two product categories have proliferated online sales channels.

For this reason, the GMV of online goods sold on Taobao and Tmall increased by a single-digit rate year-on-year in Q4 2021. One reason for this is that the year-on-year growth rate of the GMV of clothing and consumer electronics is lower than the overall average growth.

This consumption trend was again intensified during the pandemic. “Consumers’ willingness to spend has changed significantly across various categories,” said Daniel Zhang (Zhang Yong), chairman of Alibaba Group, via a teleconference, explaining why the demand for fashion garments and consumer electronics has declined. The demand for daily necessities such as food and fast-moving consumer goods (FMCG) has increased significantly; health, sports clothing, outdoor goods, and other emerging categories have also rapidly grown. In certain situations, consumers are less sensitive to the price of necessities than before, and more sensitive to the price of non-necessities.

This is why Alibaba’s e-commerce direct sales witnessed strong year-on-year growth in 2021. FMCG is a key category on the Tmall Supermarket, Freshippo, and other lines of Alibaba’s direct sales. The direct sales of Alibaba’s China retail business sector increased by 14% year-on-year in Q1 of this year. Despite the impact of the Sun Art Retail merger, the direct sales in the last year increased by 28% on a year-on-year basis.

Trudy Dai (Dai Shan), president of Alibaba and the head of Alibaba’s digital commerce in China, proposed that Taobao and Tmall should aim to become a “comprehensive business” spanning all markets at a recent communication meeting with sellers.

In addition to the growing importance of stable customer service during the pandemic, Taobao and Tmall have a major advantage in distant markets, while high-growth fresh fruit and vegetables and food-based FMCGs often rely on markets that are close at hand. Therefore, if Alibaba wants to grow, it must conduct more business.

As a proportion of total revenue, the direct sales revenue of Alibaba’s e-commerce business was 5% higher than that of its customer management revenue in this quarter. From this perspective, Alibaba is now operating like However, this figure is related to seasonal and pandemic factors, with fewer promotional activities and more everyday consumption taking place in Q1.

The performance of Alibaba’s overseas e-commerce business was steady this quarter. The revenue of its international commercial retail business was RMB 9.89 billion, an increase of 4% year-on-year. The revenue of its international commercial wholesale business was RMB 4.45 billion, an increase of 13% year-on-year.

According to financial reports, the slowed growth of Alibaba’s international commercial retail business is mainly due to the decline of Trendyol (e-commerce company in Turkey) due to the depreciation of the Turkish lira against the Chinese renminbi, and the drop in AliExpress sale orders due to the revision of VAT regulations in the European Union and the impact of the Russian invasion of Ukraine.

This is the first quarter that Jiang Fan (general manager of Tmall) has led the overseas digital commerce business. However, the current international business landscape is complex, and information from financial reports is insufficient to form a good view of the imminent results of Alibaba’s overseas e-commerce business.

Other business lines

In addition to its e-commerce business, other operations produced meaningful earnings. Local living services, logistics company Cainiao, cloud business, digital media, and entertainment contributed another 24% to Alibaba’s revenue. However, apart from the cloud business achieving a quarterly profit for the first time this quarter, the other businesses have been operating at a net loss for several continuous years.

A total of RMB 5.483 billion was lost from local living services alone in this quarter. At first glance, it seems that local living services have become Alibaba’s best business segment, with a year-on-year growth of 29%. However, it should be noted that due to the company’s organizational structure rearrangement, AutoNavi, which was originally classified as an innovative business, was incorporated into the local living segment in the previous quarter. The revenue growth of the local living business alone is not enough to restore the company’s business performance.

At present, Alibaba’s local living business is divided into two categories: home (local living platform and mobility (digital map and navigation provider AutoNavi and comprehensive travel service platform Fliggy). Although is incorporated into the life services segment, it is also a part of Alibaba’s near-market e-commerce segment. According to financial reports, non-meal orders for goods such as food and medicine placed on developed rapidly in fiscal year 2022.

During the pandemic in 2020, orders on takeout and fresh food e-commerce platforms increased dramatically. However, this year seems different. According to Alibaba’s financial report, the GMV of grew steadily in Q1 this year, mainly driven by an increase in average order volume, partially offset by the decrease in orders in March due to renewed COVID-19 outbreaks.

AutoNavi and Fliggy were both severely impacted by the pandemic. In this quarter, orders placed on AutoNavi decreased on a year-on-year basis, and orders placed on Fliggy decreased compared with those made last year.

The pandemic also affected Alibaba’s cloud business, which was widely regarded as a new avenue of growth. However, revenue in this segment increased by 12% on a year-on-year basis in Q1, mainly due to the slowdown of the national economy, weak customer demand in China’s internet industry, and the delayed delivery of some hybrid cloud projects due to the pandemic. However, the good news is that the cloud business has witnessed a quarterly profit for the first time.

Although the digital media and entertainment segments still failed to achieve revenue growth, the losses still decreased from RMB 2.7 billion in the same period last year to RMB 1.97 billion.

On the same day that Alibaba released its financial report, iQiyi also released its Q1 earnings, showing that the online video platform achieved a net profit of RMB 169 million in the current quarter. iQiyi had its first profitable quarter ever, suggesting that the video platform can operate sustainably after reducing costs and increasing efficiency.

Shifting focus

From the overall performance and market reaction to Alibaba’s financial report this quarter, it is evident that investor sentiment remains flat.

In 2015 and 2016, Alibaba’s share price on the NYSE moved sideways and remained roughly at USD 80. At that time, the company’s annual revenue was RMB 100 billion. Now, Alibaba has proven that its revenue in one quarter can exceed RMB 200 billion, which puts the company in the value stock category.

For this reason, in addition to JPMorgan raising its rating for Alibaba, Bridgewater Associates also increased its holding of Alibaba in Q1, and Fidelity International’s China Consumer Fund became the second largest holder of Alibaba shares, continuing to buy more shares in Q1.

Furthermore, Alibaba’s revenue growth may not have hit a bottom in Q1. During a teleconference, Alibaba’s management team mentioned that the GMV of its e-commerce business dropped by over 10% in April this year, while its customer management revenue and GMV hold steady.

Daniel Zhang added that Alibaba’s express delivery segment has gradually recovered over the past few weeks, and that Shanghai is beginning to return to normal, stating, “The overall situation is getting better.”

As for Alibaba’s plan to recover business in the future, Zhang said that sellers are key to achieving sustainable operations, as well as stable logistics and commodity supply chains. Specifically, Dai Shan said that fulfilling the delivery of goods is an important factor for Taobao’s consumer services.

Another aspect of improving Alibaba’s performance is the recovery of consumer demand. This depends on an increase in disposable income for consumers, said Zhang. As long as the pandemic persists, consumer confidence may not recover, which means that Alibaba’s performance is still under pressure.

“In the past few quarters and the coming year, we will pay special attention to reducing costs and improving efficiency,” said Alibaba CFO Toby Xu (Xu Hong) via a teleconference. The cost reductions and efficiency improvements will mainly be carried out in two directions—winding down businesses with no obvious long-term value, and identifying actions that will reduce costs and improve efficiency for existing businesses.

For example, relatively high gross profit margins are required for direct sales and strict control over marketing expenses. “We need to improve operating efficiency, reduce costs, ensure a strong inflow of cash, and control our cash balance,” said Xu. He indicated that this is particularly important for Alibaba in the coming year.

This article was adapted based on a feature originally written by Tan Xiaohan and edited by Wang Jing for Hefan Finance (WeChat ID: daxiongfan). KrEurope is authorized to translate, adapt, and publish its contents. 

KrASIA Connection
KrASIA Connection
KrASIA Connection features translated and adapted high-quality insights published on, the largest and most influential technology portal in Chinese language with over 150 million readers across the globe.

Related Read