BABA March 2022 and Full Year Results

JC Project Freedom Alibaba
JC Project Freedom Alibaba

Alibaba reported its latest quarter results in May. The share price went up sharply on the day of the results announcement by close to 14%. Alibaba is growing moderately and profitability is declining. Why is the stock price increasing?

The Annual Active Consumers (AAC) have increased by 177 million for both China and International markets. The China Commerce AAC increased from 814 million in March 2021 to 903 million in March 2022. The Local Consumer Sevices AAC increased from 312 million in March 2021 to 376 million in March 2022. International AAC increased from 241 million in March 2021 to 305 million in March 2022.

Source: Alibaba March Results 2022 Presentation

Total Revenue has increased by 19% YoY basis from March 2021 to March 2022. It grew from 717,289 million to 853,062 million. On a quarterly basis, the China commerce and International commerce segment see moderate single-digit growth. Excluding one-off and other items, income from operations in March 2022 would have decreased by RMB 6,894 million year-over-year, primarily due to increased investments in Taocaicai and Taobao Deals. The Adjusted EBITA decreased by 23% YoY basis from 170,453 million in March 2021 to 130,397 million in March 2022.

The cost of revenue increased from 410 billion in March 2021 to 534 billion in March 2022. Product development expenses increased from 36 billion in March 2021 to 44 billion in March 2022. Sales and marketing expenses increased from 76 billion in March 2021 to 117 billion in March 2022. The General & Administrative Expenses if less one-time Anti-monopoly Fine, should be around 25 billion in March 2021 which grew to 28 billion in March 2022.

We see from Income Statement, Income from Operations decreased by 22% from 89,678 million in March 2021 to 69,638 million in March 2022. Net Income decreased by 67% from 143,284 million in March 2021 to 47,079 million in March 2022. From the Cash Flow Statement, the Free Cash Flow decreased by 43% from 172,662 million in March 2021 to 98,874 million in March 2022.

Alibaba is the second-largest internet company in China and was hit the hardest due to the technology sector regulatory crackdown. The regulatory crackdown coupled with the zero-covid policy had hit the financial performance of recent quarters.

It was mentioned that increase of 4% in international commerce retail business revenue which is around RMB 391 million is due to growth by Lazada. Lazada is executing a localization strategy by increasing local and global product supply. Trendyol has reported slower year-over-year growth in revenue. If Lazada can spin off, it will be unlocking value for Alibaba. International commerce retail business generated GMV of USD 54 billion and served 305 million annual active consumers in the twelve months ended March 31, 2022. The combined order growth of these businesses was around 34% year-over-year.

The Local Consumer Services segment generated year-over-year growth of over 25% for the fiscal year and quarter ended March 2022. The slower growth for volume in the March quarter was due to the COVID-19 impact. enjoyed GMV growth driven by higher average order value, March has declined due to COVID-19. The unit economics improve year-over-year, driven by optimized user acquisition spending and reduction in delivery cost per order. A map and Fliggy continue to grow rapidly, enjoying an increased number of transactions and usage frequency. Due to the COVID-19 lockdown, naturally, the growth decelerated in March.

On the logistics side, Cainiao’s revenue grew 27% year-over-year to RMB 66,808 million, driven by third-party merchants as well as fulfillment solutions. After considering inter-segment elimination, revenue grew 24% to RM 46,107 million. Cainiao commenced the operation of two new international sorting centers. International eHubs in Kuala Lumpur and Liege function as customs clearance, warehousing, and fulfillment centers for their regions and running by full capacity in March 2022.

The Cloud segment comprises Alibaba Cloud and DingTalk. The cloud segment which includes revenue from services provided to other Alibaba businesses was RMB 100,180 million, an increase of 21% year-over-year. Revenue after inter-segment elimination was RMB 74,568 million which represents 23% year-over-year growth. It offers computing services in 27 regions globally, growing new data centers in 2022. In 2022, Alibaba Cloud possesses full-stack cloud infrastructure design capabilities which encompass data centers, network technologies, and proprietary hardware. Recently Alibaba introduced Panjiu which is a proprietary server with large-scale storage and high-performance storage. Alibaba Cloud provides integrated IaaS + PaaS for customers to meet demands for on-demand storage, transaction processing, and computation.

Source: Alibaba March Quarter 2022 Results – EBITA and margin segments

China’s commerce segment EBITA decreased by 19% to RMB 32,149 million in the quarter of March 31, 2022, compared to the quarter March 31, 2021. This was caused by increased investment in Taocaicai and Taobao Deals and special provisions made by Sun Art. Margin decreased from 30% to 23% accordingly.

The international commerce segment saw a loss of RMB 2,563 million in March 2022 compared to a loss of RMB 2,483 million in March 2021. This was due to the increase in the loss of Trendyol because of investments in new businesses in Turkey. The local consumer services segment suffered a loss of RMB 5,483 million on March 31, 2022, compared to a loss of RMB 6,633 million in 2021. Loss is narrowed by optimizing user acquisition spending and reduction in delivery cost per order. Cainiao segment sees a loss of RMB 912 million in the quarter ended March 2022 compared to a loss of RMB585 million in the same quarter in 2021. This increase in operating cost is due to investment in logistics infrastructure as well as the impact of COVID-19 and the Russia-Ukraine war.

The cloud segment sees a profit of RMB 276 million on March 31, 2022, compared to a loss of RMB 342 million in 2021. This is the realization of economies of scale. The digital media and entertainment segment saw a loss of RMB 1,966 million compared to a loss of RMB 2,698 million in the same quarter of 2021. This was due to disciplined investment in content and production capability.

The net cash used in investing activities sees a cash outflow of RMB 6,291 for investment and acquisition activities. This is very powerful if the asset allocation is done right.

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