Alibaba: Impressive GMV Performance, Cross-Border E-commerce Still in Investment Phase

Following the release of its financial report, Alibaba received positive feedback from the secondary market. Taotian Group is temporarily sacrificing profits to boost active user growth.

Meanwhile, competition in the cloud computing market is intensifying, prompting Alibaba Cloud to shift its focus from revenue scale to profitability. Despite increased losses, Alibaba’s overseas retail and wholesale businesses continue to show rapid revenue growth.

Financial Highlights

Alibaba disclosed its Q1 2024 performance, with revenue reaching 221.874 billion yuan, a year-over-year decline of 5.25%, and an operating profit of 14.765 billion yuan, down 3% from the previous year.

Interestingly, the secondary market responded positively to Alibaba’s stock price. After a brief drop, the stock prices in both Hong Kong and the U.S. quickly stabilized and rebounded. Although Alibaba’s performance showed some decline, Taotian Group’s operational data improved, indicating that the company is no longer passively “taking hits” from competitors like Pinduoduo and live-streaming e-commerce platforms.

Taotian Group’s Positive Data

In Q1 2024, Taotian Group’s revenue was 93.216 billion yuan, a year-over-year increase of 4%. Adjusted EBITA was 38.501 billion yuan, a decline of 1.38% from the previous year, with the operating adjusted EBITA profit margin dropping from 43.43% to 41.3%. Although Taotian Group’s revenue grew, its profit margin decreased.

According to data from the National Bureau of Statistics, during the same period, the national online retail sales reached 3.31 trillion yuan, a year-over-year growth of 12.40%. The growth rate of physical goods online retail sales was 11.6%. This data shows that Taotian Group’s revenue growth was significantly lower than the market average. Taotian Group’s revenue primarily consists of customer management, direct sales and others, and wholesale businesses, with the first two being the main revenue sources for the Taotian segment.

In Q1 2024, direct sales revenue from Tmall Supermarket and Tmall Global was 24.69 billion yuan, a year-over-year decline of 2.07%, showing weak performance compared to the overall online retail market growth. However, customer management revenue, mainly from advertising, services, and commissions from Taobao and Tmall merchants, is more indicative of GMV changes and market trends.

According to the financial report, Taotian Group’s online GMV and order volume achieved double-digit growth year-over-year in Q1 2024. Previously, the company’s GMV growth was only in the mid-single digits. Although the report did not provide specific figures, even a 10% growth rate in GMV suggests a narrowing gap with the overall e-commerce market growth, considering its substantial GMV volume, which sends a positive signal to the market.

However, it’s important to note that while Taotian Group’s GMV grew by double digits year-over-year, its customer management revenue only grew by 5.00% to 63.574 billion yuan. This discrepancy indicates a decline in conversion rates. Alibaba explained in the report that the decline was due to the increase in Taobao merchants’ online GMV and the introduction of new monetization models with lower current conversion rates.

Cloud Business Optimization

Over the past two years, Alibaba Cloud has maintained low single-digit growth, but adjusted EBITA has consistently shown double-digit growth. The average adjusted EBITA profit margin has also gradually increased.

In Q1 2024, Alibaba Cloud continued this trend with revenue of 25.595 billion yuan, a year-over-year increase of 3.45%. Adjusted EBITA was 1.432 billion yuan, a year-over-year increase of 45.09%, and the adjusted EBITA profit margin increased from 3.99% to 5.59%, the second-highest quarterly level in the past two years.

According to the financial report, high-quality revenue growth and a decline in low-profit margin project-based contract income were the main drivers of the adjusted EBITA profit margin increase. Specifically, in Q1 2024, Alibaba Cloud’s core public cloud product revenue achieved double-digit growth, AI-related revenue grew rapidly with triple-digit year-over-year growth, and low-profit margin project-based contract income continued to decrease.

Furthermore, on February 29, 2024, Alibaba Cloud announced a reduction in official website prices for cloud products, with adjustments including annual discount prices in mainland China and ECS compute savings plans, with a maximum reduction of 36%. Despite the significant drop in public cloud product prices, Alibaba Cloud’s revenue still grew, and the adjusted EBITA profit margin also improved year-over-year. This indicates that low-profit margin project-based cloud business was indeed a drag on Alibaba Cloud’s performance and suggests strong market competitiveness for Alibaba’s public cloud products domestically.

Following the success of the public cloud product price reduction strategy in the domestic market, Alibaba Cloud aims to replicate this strategy in overseas markets. According to Caixin News, on April 8, Alibaba Cloud announced price cuts for core cloud products deployed across 13 regional nodes globally, with an average reduction of 23% and a maximum reduction of 59%.

Overseas Business Still in Investment Phase

Alibaba’s overseas business is managed by the International Digital Commerce Group, which includes international retail and wholesale businesses. This segment is highly anticipated by the market as Alibaba’s second growth curve. The International Digital Commerce Group has lived up to expectations, with revenue maintaining approximately 50% growth for several consecutive quarters.

In Q1 2024, the International Digital Commerce Group’s retail platform saw overall order volume increase by 20% year-over-year, with the AliExpress Choice business performing strongly. In April 2024, Choice accounted for nearly 70% of AliExpress’s overall orders.

However, while revenue has grown rapidly, losses have also increased. During the reporting period, revenue was 27.448 billion yuan, a year-over-year increase of 45.11%, and adjusted EBITA was -4.085 billion yuan, a year-over-year increase of -88.16%. The adjusted EBITA profit margin decreased from -11.48% to -14.88%

Notably, to expand in overseas markets, Alibaba has increasingly emphasized the timeliness of cross-border logistics, resulting in the 5-day and 10-day delivery completion rates for AliExpress doubling year-over-year. This cross-border logistics fulfillment service is provided by Cainiao, which may somewhat impact Cainiao’s profitability.

According to the financial report, in Q1 2024, Cainiao’s revenue was 24.557 billion yuan, a year-over-year increase of 29.83%. Adjusted EBITA was -1.342 billion yuan, a year-over-year increase of -220.69%, and the adjusted EBITA profit margin decreased from -1.69% to -5.46%. Alibaba attributed the loss mainly to the withdrawal of employee stock options at Cainiao.

In the short term, Alibaba’s International Digital Commerce Group will likely remain in a loss-making state, and Cainiao’s performance may also be somewhat dragged down by the emphasis on cross-border delivery timeliness.

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