BABA (BABA.N) Financial report comments: e-commerce performance is basically in line with expectations, reducing costs and increasing efficiency to improve profits
Event
Before the US stock market opened on Aug. 4, BABA (BABA.N) announced his results for the first quarter of fiscal year 2023, which ended June 31, 2022. Revenue for the quarter was slightly higher than expected, while adjusted EBITA was significantly higher than expected.
The company's revenue in the quarter was 205.6 billion yuan, which remained stable compared with the same period last year, slightly higher than the market expectation of 203.1 billion yuan. The adjusted EBITA was 34.4 billion yuan, down 17.5% from the same period last year, significantly exceeding the market expectation of 28.7 billion yuan.
Core viewpoints
China's e-commerce as a whole is basically in line with expectations, and multiple macro adverse factors affect international e-commerce.
The overall revenue of Chinese business in this quarter was in line with expectations, at 141.9 billion yuan, down 1.5% from the same period last year, and the market is expected to be 140.6 billion yuan. Taobao Tmall GMV fell by the middle digit compared with the same period last year, which was better than the expected high single digit. Customer management revenue was 72.2 billion yuan, down 10% from the same period last year and higher than the expected 52.7 billion yuan. Customer management revenue lagged behind the growth of platform GMV in the quarter, mainly due to an increase in order cancellations and weak advertising by merchants. Direct retail revenue was 64.7 billion yuan, an increase of 8% over the same period last year, mainly driven by strong growth in online shopping. International e-commerce business revenue of 15.5 billion yuan, affected by the new rules of value-added tax, Russia-Ukraine conflict and other factors, an increase of 2% year-on-year, less than expected.
Cloud services: growth continues to slow, and non-Internet customers' share of revenue increases
Cloud computing continued to grow this quarter, but the growth rate has slowed. The income was 17.7 billion yuan, an increase of 10% over the same period last year, and the growth rate slowed down again, which was lower than the expected 18.2 billion yuan. The reduction in investment from Internet customers and the impact of the epidemic on project delivery have led to a slowdown in cloud business revenue growth. Non-Internet customers accounted for 53% of revenue during the quarter, up 1% from a month earlier and up 5% from a year earlier.
Other business: local living loss has improved
The income from local living services in this quarter was 10.6 billion yuan, an increase of 5% over the same period last year. The increase in income was mainly due to a reduction in subsidies and an increase in the realization rate during the epidemic. The revenue of Cainiao in this quarter was 12.1 billion yuan, up 5% from the same period last year, of which 70% came from foreign customers. The upgrading of consumer services led to an increase in logistics service revenue, which was offset by a decline in international orders from AliExpress. Revenue from the digital media and entertainment business in the quarter was 7.2 billion yuan, down 10% from the same period last year.
The gross profit margin increased month-on-month, and the company reduced its cost and increased efficiency, resulting in an improvement in the rate of expenses.
The gross profit margin for the current quarter was 37%, compared with 40% for the same period last year. The gross profit margin has declined but is still higher than the 35.4% expected by the market. The main reason for the decline in gross profit margin is the increase in the proportion of Ali's heavy asset business and the construction of Cainiao logistics.
In this quarter, the company is determined to reduce costs and increase efficiency, the rate of sales expenses continues to decline, the rate of R & D expenses has increased, but the growth rate has slowed significantly, and the increase of management expenses is related to the optimization of personnel structure.
Investment suggestion
In this quarter, BABA's revenue slightly exceeded expectations, while profits significantly exceeded expectations, in part because the market had a slightly lower estimate of GMV, while the forecast of the improvement of cost reduction to expense rate was conservative. This quarter is basically the bottom of income, with the macroeconomic recovery and the recovery of consumer confidence, the fundamentals are expected to continue to repair, but the risks faced by various business lines will still exist in the short term. In the future, we will continue to pay attention to the improvement of cost reduction and efficiency on the expense rate, and in addition to the profit improvement brought about by downsizing, the substantial revenue growth of core business and the suppression of valuation by uncertain events such as regulatory aspects have alleviated.
Risk hint
Inflation risk, lack of consumer confidence, antitrust regulatory risk, intensified competition in cloud computing
Text
1. the growth rate of revenue is the same as the same period last year, and the profit is significantly higher than expected.
The company's revenue in the quarter was 205.6 billion yuan, basically the same as the same period last year, compared with 205.7 billion yuan in the same period last year, stronger than the 203.1 billion yuan expected by the market. The operating profit was 24.9 billion yuan, down 19% from the same period last year, and the market is expected to be 19.3 billion yuan. The adjusted EBITA was 34.4 billion yuan, compared with 41.7 billion yuan in the same period last year, down 17.5% from the same period last year, but still significantly exceeded the market expectation of 28.7 billion yuan.
It is mainly due to the narrowing of losses in some businesses and the significant improvement in expense rates. The main expected difference in this quarter comes from: (1) the Chinese e-commerce business with the largest revenue share exceeds market expectations by 1%, and the wholesale business performance is higher than expected; (2) the cost control performance is excellent, and the sales expense rate has improved significantly in this quarter. For the second consecutive quarter, the growth rate of R & D expenses has slowed, and management expenses have been affected by layoff compensation. (3) the losses of Taote, Taocai, box horse, ele.me, Lazada and Youku all improved significantly this year compared with the previous quarter.
Figure 1: BABA's quarterly revenue and its growth rate, millions of yuan
Figure 2: BABA's quarterly EBITA and EBITA Margin, millions of yuan
Figure 3: BABA FY23Q1 quarterly revenue share of sub-division,%
2. Core e-commerce: China's e-commerce as a whole is basically in line with expectations, and multiple macro adverse factors affect international e-commerce.
The overall revenue of Chinese business in this quarter was in line with expectations, at 141.9 billion yuan, down 1.5% from the same period last year, and the market is expected to be 140.6 billion yuan. This quarter Taobao Tmall GMV fell by the middle digit compared with the same period last year, which is better than the expected high single digit.Affected by the epidemic and the 618 promotion this quarter, logistics bottlenecks caused by repeated outbreaks and restrictions blocked the supply chain and logistics for most of April and May, leading to an increase in the number of order cancellations. With the gradual recovery of logistics capacity in late May, GMV growth began to recover on the 618th Shopping Festival. The company expects business conditions to recover further in July compared with June, especially in clothing, consumer electronics and other categories that are more affected by the epidemic.
(1) customer management income (Customer Management Revenue, that is, CMR) was 72.2 billion yuan in the current quarter, down 10% from the same period last year and higher than the expected 52.7 billion yuan.Customer management revenue lagged behind the growth of platform GMV in the quarter, mainly due to an increase in order cancellations and weak advertising by merchants.
Figure 4: BABA's customer management income and its growth rate, millions of yuan
(2) the direct retail revenue (including Box Horse, Gao Xin, Maochao and other businesses) was 64.7 billion yuan in this quarter, an increase of 8% over the same period last year, mainly driven by the strong growth of online shopping.But it was partially offset by the weak offline sales caused by the outbreak. In this quarter, box horse and Gaoxin retail accounted for 68% and 36% of online sales, respectively.
Figure 5: BABA's direct business income and its growth rate, millions of yuan
(3) the number of ACC of the company is not disclosed for the first time in this quarter, and the management focus is no longer on the goal of adding users, but on the tiered services of users. As of last quarter, domestic e-commerce users exceeded 900 million.With local life and other users, the total number of domestic users has reached 1 billion This quarter focuses on the disclosure of 88VIP and user stickiness, the end of the quarter 25 million 88VIP, per capita annual ARPU value reached 57000 yuan. The retention rate of users who spend more than 10,000 yuan in the next year is 98%.
The adjusted EBITA of China Business was 43.6 billion yuan in the quarter, compared with 50.8 billion yuan in the same period last year, mainly due to a decrease of 8 billion yuan in customer management revenue, offset by the company's positive progress in improving the operational efficiency of its loss-making business. In this quarter, the total loss of Taote and Hema narrowed by 1.5 billion yuan compared with the same period last year. Amoy vegetable loss increased slightly compared with the same period last year, but GMV growth was strong, and the quarterly loss decreased from the previous quarter.
In terms of international e-commerce business (including AliExpress, Lazada, Trendyol, Alibaba), revenue in the current quarter was 15.5 billion yuan, an increase of 2% over the same period last year, less than the expected 16 billion yuan.Among them, the international retail business fell by 3%, the wholesale business grew by 12%, and the revenues of AliExpress and Trendyol declined. The poor performance of retail business is mainly due to the new value-added tax regulations of the European Union, the devaluation of the euro, and the conflict between Russia and Ukraine, resulting in some overseas logistics delivery dragging down AliExpress's export retail business, the return of Southeast Asia to offline Lazada performance growth, and the continued devaluation of the Turkish lira on Trendyol income.
Figure 6: BABA's international e-commerce business income and its growth rate, millions of yuan
3. Cloud services: the growth rate continues to slow, and the proportion of non-Internet customers' revenue increases.
Cloud computing continued to grow this quarter, but the growth rate has slowed. The cloud computing revenue of Aliyun and nails in this quarter was 17.7 billion yuan, an increase of 10% over the same period last year, and the growth rate slowed down again, which was lower than the expected 18.2 billion yuan. The reduction in investment from Internet customers and the impact of the epidemic on project delivery have led to a slowdown in cloud business revenue growth. Non-Internet customers accounted for 53% of revenue during the quarter, up 1% from a month earlier and up 5% from a year earlier.
Figure 7: BABA cloud computing business income and its growth rate, millions of yuan
The adjusted EBITA of the cloud business unit in the current quarter was 247 million yuan, down 93 million yuan from the same period last year, and lower than the market expectation of 340 million yuan, mainly due to the increase in investment in technology and the increase in hosting and bandwidth. In the future, the company will continue to regard cloud business as its core strategy, believing that the next growth point is industrial digitization, that is, the proportion of non-Internet companies in cloud business is increasing. The company will launch different applications for different industries to capture opportunities.
4. Other businesses: local living losses have improved
In other businesses, the focus is mainly on improving the business structure and reducing losses.
The revenue from local life services (home: ele.me; arrival: Gaode, Flying Pig) was 10.6 billion yuan this quarter, up 5% from the same period last year. The increase in income was mainly due to a reduction in subsidies and an increase in the realization rate during the epidemic. The adjusted EBITA loss decreased by 1.7 billion yuan to 3 billion yuan in the quarter, mainly due to a narrowing loss in the home business. The unit economic benefit of ele.me turned positive this quarter, which is due to the increase of customer unit price and the reduction of distribution cost per unit during the epidemic.
The revenue of Cainiao in this quarter was 12.1 billion yuan, up 5% from the same period last year, of which 70% came from foreign customers. The upgrading of consumer services led to an increase in logistics service revenue, which was offset by a decline in international orders from AliExpress. The adjusted EBITA loss was 185 million yuan, an increase of 39 million yuan over the same period last year, mainly due to the company's global investment in the expansion of smart logistics infrastructure and the reduction in the number of international orders made by AliExpress.
Revenue from the digital media and entertainment business in the quarter was 7.2 billion yuan, down 10% from the same period last year. After adjustment, the loss of EBITA was 630 million yuan, an increase of 211 million yuan over the same period last year. Youku's loss continued to narrow this quarter, but was offset by an increase in losses in other entertainment businesses as a result of the epidemic.
5. the month-on-month improvement of gross profit margin and the improvement of expense rate due to cost reduction and efficiency improvement of the company
The gross profit margin for the current quarter was 37%, compared with 40% for the same period last year. The gross profit margin has declined but is still higher than the 35.4% expected by the market.The main reason for the decline in gross profit margin is the increase in the proportion of Ali's heavy asset business and the construction of Cainiao logistics. The company's gross profit margin was 32% in the last quarter.
Figure 8: BABA's quarterly gross profit and gross profit margin, millions of yuan
From the perspective of expense rate, the company is determined to reduce cost and increase efficiency significantly in this quarter, the sales expense rate continues to decline, the R & D expense rate has increased, but the growth rate has slowed down significantly, and the increase in management expense rate is related to the optimization of personnel structure.The rate of GAAP sales expenses for the current quarter was 12.6%, the second consecutive quarter of improvement, compared with 13.1% in the same period last year. The rate of R & D expenditure is 7%, and the absolute value of R & D expenditure increased by 5% compared with the same period last year, and the growth rate was 22% in the same period last year, which is significantly slower than the average in previous years. The rate of management expenses was 4.2%, a slight increase compared with the same period last year and an increase of 18% over the same period last year. The increase in management expenses is related to the optimization of the company's personnel structure in this quarter, and the number of employees of the company decreased by nearly 10,000 in this quarter.
Figure 9: BABA's quarterly GAAP expense rate,%
The company's Non-GAAP net profit for the quarter was 30.3 billion yuan, down 34% from a year earlier, compared with 45.7 billion yuan in the same period last year. This is mainly due to the decline in the adjusted EBITA of the company and the decline in the performance share of the invested company (mainly the Ant Group) accounted for by the equity method.
Figure 11: BABA Non-GAAP net profit and its growth rate, millions of yuan
Looking ahead, the company will continue to focus on some of the key operating principles and financial objectives put forward in the previous quarter, including focusing on high-quality growth, improving operating efficiency, optimizing the cost structure, and maintaining strong cash flow and net cash levels.
Investment suggestion
In this quarter, BABA's revenue slightly exceeded expectations, while profits significantly exceeded expectations, in part because the market had a slightly lower estimate of GMV, while the forecast of the improvement of cost reduction to expense rate was conservative.This quarter is basically the bottom of income, with the macroeconomic recovery and the recovery of consumer confidence, the fundamentals are expected to continue to repair, but the risks faced by various business lines will still exist in the short term, and we will continue to focus on the improvement of cost reduction and efficiency on the expense rate in the future. and in addition to the profit improvement brought about by the downsizing, the substantial revenue growth of the core business and the suppression of valuation caused by uncertain events such as supervision.
Risk hint
Higher-than-expected inflation risk, lack of consumer confidence, regulatory risks brought about by antitrust and digital regulation, intensified competition in cloud computing, slower-than-expected slowdown in capital expenditure, and lower-than-expected digital content
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