Alibaba's Latest Quarterly Results: A Critical Analysis

Jack Ma is offloading shares, Cloud will not spinoff, and more.

Dear readers,

This is a quick post and reaction to Alibaba’s latest financial results. Despite some positive statistics, there are underlying concerns that need to be addressed.

Financial Highlights:

1. Revenue Growth: Key financial metrics are higher than expected: including revenue (+9% YoY), adj. EBITA (+18% YoY) and non-GAAP net income (+19% YoY).

2. Dividend Declaration: For the first time, Alibaba has declared a dividend of US$0.125 per ordinary share or US$1.00 per ADS, totaling roughly US$2.5 billion.

3. Share Repurchases: The company continues its share repurchase program, buying back about US$1.7 billion in shares. This move, while boosting short-term shareholder value, might indicate a lack of better investment opportunities and a further move from growth to mature state in the corporate life cycle.

4. AIDC's Performance: Despite Alibaba International Digital Commerce (AIDC) reporting a 53% revenue increase and a 73% rise in retail revenue, these numbers could be overshadowed by aggressive competition overseas. Alibaba’s overseas e-commerce is facing strong headwinds from competitors such as Shei,n, Temu and TikTok Shops, all of them spending much more aggressively to capture market share and acquiring customers. Will be keen to follow the interest from investors as AIDC move to secure external fundraising and the success of that.

Strategic Decisions and Challenges:

1. The reversal in Cloud Division Strategy: Alibaba will not proceed with the spin-off of the cloud intelligence division citing recent U.S. restrictions on advanced computing chips as the main reason. This is a complete reversal of the previous narrative which played up the potential of cloud as a standalone entity. Alibaba's cloud-based apps, including Taobao and DingTalk and others, suffered a system outage during the 11.11 period this year, and it’s the second significant system failure within a year. This could have long-term ramifications for the confidence in the cloud offerings and lead to additional shareholders' scrutiny. 

2. Jack Ma Selling Shares: The U.S. SEC disclosed that Jack Ma's family trusts plan to sell 5 million Alibaba shares on November 21, valued at approximately $870.7 million, following a significant reduction in Ma's stake to 4.8% as of July 2020. While it's not uncommon for family offices to periodically reduce their holdings, this action sends mixed signals to the market.

3. Cainiao's IPO Ambitions Amid Uncertainties: Cainiao has applied for an IPO in Hong Kong, aiming to raise at least $1 billion. The Cainiao IPO is crucial against the backdrop of the delayed listing of its Freshippo grocery unit and the shelved spinoff of its cloud business. The hope now rests on its logistics arm to reaffirm the strategy of the restructured 6-part Alibaba, and the potential to boost shareholder returns.

Final Thoughts: The current state of affairs at Alibaba is a mix of short-term gains overshadowed by long-term strategic and operational concerns. From the quarterly snapshot, it doesn’t seem that the restructuring has achieved its initial goal of driving shareholder value.

After earnings call, Alibaba’s stock is down around 9% this morning.

souce: Alizila