Alibaba Group has upped its share buyback by $25 billion and scored early wins in its battle to attract buyers and merchants in the China commerce arena, the holding company said in its latest quarterly earnings report.
During the three months ended Dec. 31, more transacting buyers and merchants congregated on Alibaba’s China marketplaces than a year before. The hubbub of commerce in China and beyond helped lift Alibaba’s third-quarter revenue 5% higher year-over-year.
On a second front, Alibaba said quarterly revenue at its cloud-computing business gained 3% year-over-year after shifting focus to public cloud business from lower-margin project-based contracts.
Against a backdrop of stiff competition and rapid technological change, Alibaba announced a new management lineup and overhauled its strategy last year to jumpstart stalled growth.
“Our top priority is to reignite the growth of our core businesses, e-commerce and cloud computing,” said Alibaba Group’s CEO, Eddie Wu, on Wednesday. Wu became CEO of Alibaba Group and Alibaba Cloud Intelligence Group on Sept. 10, as well as CEO of Taobao and Tmall Group on Dec. 20.
Wu has vowed to deploy Alibaba’s considerable financial resources to drive business growth, a promise he reiterated on Wednesday. That still leaves ample firepower to bolster shareholder returns through the next three fiscal years.
Alibaba boosted its share repurchase program by an additional $25 billion and extended it until the end of March 2027. The move quickly follows its first-ever dividend.
“If you buy Alibaba stock, it’s like you bought a 10-year Treasury bond with the upside of stock-price appreciation,” said Alibaba’s Chairman Joe Tsai.
After upsizing the buyback, it has $35.3 billion left in the program. Alibaba is targeting a net reduction in share count of at least 3% annually over the coming three fiscal years.
“This is a sizable step up,” said Alex Yao, an analyst at JP Morgan.
Consumer sentiment in China is gradually returning to secular growth post-pandemic and consumption continues to digitize. Between January and November, the country’s online retail sales rose 11% year-over-year. Still, amid continuing economic uncertainty, mass affluent and lower-income Chinese consumers have sought value for money, according to retail experts.
“China has entered a new norm of consumption pattern where the consumption upgrade in quality for goods and services continues, but consumers are turning more sensitive on prices,” said Citigroup analysts, including Alicia Yap, in a report on Jan. 10.
Alibaba executives have also flagged price-sensitive behavior, drawing upon insights from China’s biggest digital retail platform Taobao and the holding company’s other marketplaces. To satisfy bargain hunters, the Taobao and Tmall Group is ramping up its efforts to provide different segments of Chinese consumers with products and services at attractive prices.
There are signs that the fresh approach is gaining traction among consumers. During the third quarter, Taobao and Tmall Group’s revenue rose 2% year-over-year. Its online GMV swelled year-over-year, with the number of transacting buyers and order volume growing strongly, partly offset by a decrease in average order value. The ranks of its loyalty membership program 88VIP surpassed 32 million in the quarter.
Likewise, the number of merchants operating on its platform during the quarter rose by double digits year-over-year, a trend that has persisted over the past four quarters.
The world’s largest shopping spree, 11.11, took place during Alibaba’s third fiscal quarter. Order volume climbed by double digits year-over-year during the second half of the quarter, reflecting increasing consumer demand and willingness to purchase on its platform driven by its price-competitive strategy.
Wu is keeping his foot on the gas pedal. He outlined a set of upgrades for Taobao and Tmall Group and predicted a year of "significant" investment.
“We will step up investment to improve users’ core experiences to drive growth in Taobao and Tmall Group and strengthen market leadership in the coming year,” said Wu.
Taobao and Tmall’s China commerce retail business’ customer management revenue, mainly marketing services and commissions on transactions, was stable year-over-year, largely due to healthy growth in online GMV, excluding unpaid orders, partly offset by a decline in the overall take rate. The overall take rate dipped year-over-year, primarily because of the increase in GMV from Taobao merchants.
"We see this as early success of the execution of our strategy" as Alibaba builds up the supply of price-competitive products, purchase frequency picks up, said Alibaba’s Chief Financial Officer Toby Xu on a post-earnings call with analysts. Alibaba believes as merchants' orders stack up and GMV swells, the opportunities for monetization will multiply, especially given its take rate is relatively low compared to its peer group.
Looking further afield, Alibaba International Digital Commerce Group’s quarterly revenue leaped 44% year-over-year, and its combined orders jumped 24% year-over-year.
"There is huge potential for AIDC to increase user penetration in the majority of overseas markets," said Jiang Fan, AIDC's CEO, on the conference call with analysts.
AIDC’s cross-border businesses posted rapid year-over-year growth in response to increasing global demand for high-quality products at attractive prices. To sustain this momentum and provide differentiated services to customers, the holding company boosted investments in the business during the quarter.
International retail marketplace AliExpress delivered over 60% year-over-year order growth in the quarter, driven by new service Choice. Choice represented about half of AliExpress’ total orders in January and continues to deliver rapid order growth.
"Its high-quality user experience has driven significant user growth and transaction growth on the AliExpress platform and going forward, we'll continue to invest resolutely to further increase Choice's penetration and provide a better experience to more users," said Jiang.
During the quarter, the leading e-commerce platform in Türkiye, Trendyol, continued its robust double-digit order growth and expanded in the Middle East, while in Southeast Asia, Lazada’s loss per order narrowed year-over-year.
AIDC’s losses increased year-over-year primarily because of increased investment in businesses, including AliExpress’ Choice and Trendyol’s international business, partly offset by improvements in monetization.
Cloud, Cainiao and Others
Quarterly revenue from the Cloud Intelligence Group grew 3% year-over-year. It improved revenue quality by cutting back on low-margin project-based contracts and doubling down on public cloud products and services, which thrived.
Smart logistics group Cainiao’s quarterly revenue rose 24% year-over-year, largely driven by revenue from cross-border fulfillment solutions. Order volume for its premium five-day delivery service achieved robust triple-digit quarter-over-quarter growth.
Alibaba’s Local Services Group saw quarterly revenue jump 13% year-over-year, driven by the healthy growth of delivery platform Ele.me and the rapid growth of navigation tool Amap.
During the quarter, order growth of the Local Services Group topped 20% year-over-year. The business group’s annual active consumers reached over 390 million and their annual purchasing frequency picked up strongly year-over-year for the twelve months ended Dec. 31. Its losses for the quarter continued to narrow, driven by improving business scale and efficiency.
Digital Media and Entertainment Group’s quarterly revenue jumped 18% year-over-year, driven by strong revenue growth of Alibaba Pictures' offline entertainment businesses, which serviced almost all major concerts in China and accounted for more than half of China’s total box office during the quarter.
“During a dismal economic outlook, consumers tend to seek entertainment and leisure services to balance and offset anxieties in their lives,” said the Citigroup analysts in the Jan. 10 report.
If you buy Alibaba stock, it’s like you bought a 10-year Treasury bond with the upside of stock-price appreciation
In March last year, Alibaba embarked on a major reorganization designed to unlock value. In the first nine months of the fiscal year, Alibaba has exited about $1.7 billion worth of non-core investments. "That's a pretty good pace," said Alibaba's Chairman Joe Tsai.
Excluding Sun Art, Freshippo and Intime businesses that have physical retail operations, the holding company's revenue would have grown at about 8% and its consolidated adjusted Ebitda margin would have been four percentage points higher.
Aside from investing in growth, disposals, buybacks and dividends, Alibaba is also creating shareholder value by generating synergies between core businesses.
"I see very strong potential for greater synergy between Alibaba Cloud and the Taobao and Tmall Group, especially driven by AI," said Wu. Alibaba is in the early stages of leveraging its proprietary large language model, Tongyi Qiawen, to enhance Taobao's search conversion and monetization.
In August, Taobao and Tmall Group upgraded a key advertising platform, dubbed the Wanxiangtai Unbounded Edition, featuring proprietary AI technologies.
Alibaba is also continuing to explore value creation through separate financings of business units. "But given the challenging market conditions...we're not in a hurry on the timing of these transactions," said Tsai.
Revenue for the third quarter rose 5% year-over-year to RMB260.35 billion ($36.67 billion), in line with consensus forecasts. Adjusted EBITA, a non-GAAP measurement, edged 2% higher year-over-year to RMB52.84 billion. Non-GAAP net income in the quarter slipped 4% to RMB47.95 billion.
Free cash flow, a non-GAAP measurement of liquidity, was RMB56,540 million, down 31% from a year ealier. The drop was due to increased capex and several one-time factors, including timing of income tax payments and working capital changes related to several businesses.
“We delivered a solid quarter as we are executing our focused strategies across the organization,” said Alibaba’s Wu.
This article has been updated with details throughout and analyst reactions to the earnings results
Additional reporting by Elizabeth Utley