Alibaba Group Announces December Quarter 2023 Results

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Insights

The reported 5% year-over-year revenue growth by Alibaba indicates a moderate increase in the company's top-line figures. However, the 36% decrease in income from operations and the 77% decrease in net income are significant and raise concerns about the company's operational efficiency and profitability. The impairments of intangible assets and goodwill are notable, as they suggest a reassessment of the value of the company's acquisitions and investments, which could indicate strategic missteps or market changes that have affected the value of these assets.

The increase in share repurchase program by an additional US$25 billion signals strong confidence by the management in the company's future cash flows and earnings potential. Share repurchases can be a positive signal to investors as they can potentially lead to earnings per share (EPS) accretion and a reduction in equity dilution. However, the reduced free cash flow, down by 31%, is a concern as it might limit the company's ability to invest in growth opportunities or return value to shareholders in the future.

From an investment standpoint, the mixed financial results, with both positive and negative indicators, would require a nuanced interpretation. The company's strategic focus on core businesses and technological innovation could be promising, but the financial health and sustainability of these investments will be crucial for long-term value creation.

Alibaba's strategic updates, particularly the revitalization of Taobao and Tmall Group and the focus on user engagement, suggest an effort to adapt to the competitive e-commerce landscape in China. The reported 2% year-over-year growth in revenue from these platforms, despite a decrease in average order value, indicates resilience in transaction volume and buyer activity. This is significant as it shows Alibaba's ability to maintain its user base and merchant engagement in a highly competitive market.

The growth in Cloud Intelligence Group revenue, albeit modest at 3%, along with the recognition by Gartner, positions Alibaba as a key player in the cloud computing sector. The shift towards higher-margin public cloud products and services is a strategic move to improve profitability, which is critical as cloud computing becomes increasingly commoditized.

The 44% year-over-year revenue growth in Alibaba International Digital Commerce Group (AIDC) is particularly noteworthy, as it highlights the company's successful expansion in international markets. The performance of AliExpress and the AliExpress Choice business model reflects a strategic adaptation to global consumer demand for quality and value, which could be a significant growth driver for Alibaba going forward.

The e-commerce industry is characterized by fierce competition and rapid innovation, with consumer preferences and technology trends constantly evolving. Alibaba's emphasis on technology-driven innovation and its user-first strategy are in line with industry norms for sustaining growth. The appointment of a new management team for Taobao and Tmall Group suggests a strategic pivot that could reinvigorate the platform and enhance its competitiveness.

Alibaba's focus on interactive content and value-for-money products is a response to the growing demand for an engaging shopping experience and affordable quality goods. The double-digit growth in merchant numbers on the platform is a positive indicator of Alibaba's ecosystem's attractiveness to sellers. Additionally, the success of the 11.11 Global Shopping Festival and the growth of 88VIP members reflect the company's strong brand and customer loyalty, which are critical assets in the e-commerce space.

However, the average order value's decrease and the reduction in free cash flow are areas of concern. These could indicate pricing pressures and increased competition affecting profitability. The e-commerce sector requires continuous investment in user acquisition, technology and logistics and any constraints on cash flow could impact Alibaba's ability to sustain its market leadership and growth trajectory.

02/07/2024 - 06:30 AM

HANGZHOU, China--(BUSINESS WIRE)-- Alibaba Group Holding Limited (NYSE: BABA and HKEX: 9988 (HKD Counter) and 89988 (RMB Counter), “Alibaba” or “Alibaba Group”) today announced its financial results for the quarter ended December 31, 2023.

“We delivered a solid quarter as we are executing our focused strategies across the organization. Our top priority is to reignite the growth of our core businesses, e-commerce and cloud computing. 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. We will also focus our resources on developing public cloud products and sustaining the strong growth momentum in international commerce business,” said Eddie Wu, Chief Executive Officer of Alibaba Group.

“Alibaba Group delivered a healthy quarter with revenue growth of 5% year-over-year. We increased our investment in strategic priorities and improved shareholder return by leveraging our strong balance sheet and cash flow. Our board of directors approved an increase of US$25 billion to our share repurchase program, demonstrating our confidence in the outlook of our business and cash flow. Our consistent share repurchase has also reduced outstanding share count while achieving EPS and cash flow per share accretion,” said Toby Xu, Chief Financial Officer of Alibaba Group.

BUSINESS HIGHLIGHTS

In the quarter ended December 31, 2023:

Revenue was RMB260,348 million (US$36,669 million), an increase of 5% year-over-year.

Income from operations was RMB22,511 million (US$3,171 million), a decrease of 36% year-over-year. The year-over-year decrease was primarily attributable to impairment of intangible assets of Sun Art and impairment of goodwill of Youku. Adjusted EBITA, a non-GAAP measurement (excluding share-based compensation expense, impairment of intangible assets and goodwill and certain other items), increased 2% year-over-year to RMB52,843 million (US$7,443 million).

Net income attributable to ordinary shareholders was RMB14,433 million (US$2,033 million). Net income was RMB10,717 million (US$1,509 million), a decrease of 77% or RMB35,029 million year-over-year, primarily attributable to mark-to-market changes from our equity investments and the decrease in income from operations due to the impairment as mentioned above. Excluding share-based compensation expense, gains/losses of investments, impairment of intangible assets and goodwill, and certain other items, non-GAAP net income in the quarter ended December 31, 2023 was RMB47,951 million (US$6,754 million), a decrease of 4% compared to RMB49,932 million in the same quarter of 2022.

Diluted earnings per ADS was RMB5.65 (US$0.80) and diluted earnings per share was RMB0.71 (US$0.10 or HK$0.78). Non-GAAP diluted earnings per ADS was RMB18.97 (US$2.67), a decrease of 2% year-over-year and non-GAAP diluted earnings per share was RMB2.37 (US$0.33 or HK$2.62), a decrease of 2% year-over-year.

Net cash provided by operating activities was RMB64,716 million (US$9,115 million), a decrease of 26% compared to RMB87,370 million in the same quarter of 2022. Free cash flow, a non-GAAP measurement of liquidity, was RMB56,540 million (US$7,963 million), a decrease of 31% compared to RMB81,514 million in the same quarter of 2022. The decrease in free cash flow was attributed to increased capex and several one-time factors including timing of income tax payments and working capital changes related to several of our businesses.

BUSINESS AND STRATEGIC UPDATES

Taobao and Tmall Group

We are in the process of revitalizing Taobao and Tmall Group and positioning it for future growth. Our growth strategy is to put users first, build ecosystem for brands and merchants to thrive on our platform, and realize technology-driven innovation. We are committed to building an e-commerce ecosystem where brands, merchants and manufacturers operate with high efficiency, thereby providing multi-tiered Chinese consumers with good products and services at attractive prices. In December 2023, we appointed a new management team to execute Taobao and Tmall Group’s strategy and drive business growth through technological innovation.

For the quarter ended December 31, 2023, revenue from Taobao and Tmall Group was RMB129,070 million (US$18,179 million), a growth of 2% year-over-year. During the quarter, online GMV achieved healthy growth year-over-year, with the number of transacting buyers and order volume growing strongly, partly offset by decrease in average order value. Under our user engagement and price-competitive strategies, we continued to increase interactive content and broaden the assortment of value-for-money products. Additionally, we continued our efforts to onboard a wider range of brands and merchants. The number of merchants operating on our platform during the quarter continued to grow at double digits year-over-year, and this double-digit growth trend has sustained over the past four quarters.

Following a successful 11.11 Global Shopping Festival, order volume grew double digits year-over-year during the second half of the quarter. This reflected increasing consumer demand and willingness to make purchases on our platform driven by our price-competitive strategy.

On the other hand, we have been successful in retaining and growing premium shoppers as the number of 88VIP members continued to increase double digits year-over-year, surpassing 32 million.

Cloud Intelligence Group

For the quarter ended December 31, 2023, revenue from Cloud Intelligence Group was RMB28,066 million (US$3,953 million), a growth of 3% year-over-year. We continue to improve revenue quality by reducing the revenue from low-margin project-based contracts. On the other hand, revenue from public cloud products and services grew healthily which contributed to profitability improvement.

Recent highlights of our proprietary products and technology include:

Elastic Compute: In January 2024, Alibaba Cloud unveiled its newest general-purpose ECS instance g8i, which significantly boosts overall performance and AI inferencing capabilities.

Database: In the 2023 Gartner® Magic Quadrant™ for Cloud Database Management Systems report, Alibaba Cloud was named a Leader for the fourth year in a row.

Alibaba International Digital Commerce Group (“AIDC”)

For the quarter ended December 31, 2023, revenue from AIDC grew 44% year-over-year to RMB28,516 million (US$4,016 million), and the combined orders of AIDC grew 24% year-over-year. The strong performance was driven by solid growth across all of AIDC’s retail platforms, especially from the cross-border AliExpress Choice business. Our cross-border businesses exhibited 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, we increased investments during this quarter and will continue to invest in further growth.

During the quarter, AliExpress delivered over 60% year-over-year order growth, driven by Choice, which provides an enhanced experience to consumers by combining better product selection, price and quality with speed of logistics and great customer support. Choice represented about half of AliExpress’ total orders in January 2024 and continues to deliver rapid order growth.

During the quarter, Trendyol continued its robust double-digit order growth. While maintaining its leading e-commerce position in Türkiye, Trendyol has further extended its operations into the Middle East with a wide range of merchandise as well as speedy and reliable logistics experience.

Lazada continues to focus on optimizing its operating efficiency. With further increased monetization and decreased logistics costs, Lazada’s loss per order continued to narrow year-over-year during the quarter.

Cainiao Smart Logistics Network Limited (“Cainiao”)

For the quarter ended December 31, 2023, revenue from Cainiao grew 24% year-over-year to RMB28,476 million (US$4,011 million), primarily driven by revenue from cross-border fulfillment solutions.

Cainiao continues to execute its strategy of building a global smart logistics network, reinforcing comprehensive end-to-end capabilities in first-mile pick-up, line haul, customs clearance, sortation, and last-mile delivery. To support cross-border business development, with the upgrade of end-to-end capabilities, Cainiao further expanded its premium 5-day delivery service coverage, adding two more countries during the quarter. The order volume for the premium 5-day delivery service achieved robust triple-digit quarter-over-quarter growth.

Local Services Group

For the quarter ended December 31, 2023, revenue from Local Services Group grew 13% year-over-year to RMB15,160 million (US$2,135 million), driven by healthy growth of Ele.me and rapid growth of Amap. During this quarter, order growth of Local Services Group exceeded 20% year-over-year. Local Services Group’s annual active consumers reached over 390 million and their annual purchasing frequency grew strongly year-over-year for the twelve months ended December 31, 2023. For this quarter, its losses continued to narrow driven by improving business scale and efficiency.

Digital Media and Entertainment Group

During the quarter ended December 31, 2023, revenue of Digital Media and Entertainment Group was RMB5,040 million (US$710 million), an increase of 18% year-over-year, driven by strong revenue growth of offline entertainment businesses of Alibaba Pictures. During the quarter, Damai, a subsidiary of Alibaba Pictures, consolidated its industry-leading position by servicing almost all the major concerts in China, which contributed to rapid GMV growth year-over-year. Total box office of movies produced, promoted and distributed by Alibaba Pictures’ movie segment accounted for more than half of China’s total box office during the quarter.

Updates on ESG Initiatives

Progress in Decarbonization

We continue to accelerate our transition to clean energy. In November 2023, Bloomberg New Energy Finance released the “China's Top Clean Energy Buyers and Sellers in 2023.” Alibaba Group, with a green electricity transaction volume of 1,610 gigawatt-hours, became the national leader for green electricity procurement for the first time.

In November 2023, Alibaba Group was the first Asian Internet technology company to join the World Business Council for Sustainable Development (WBCSD), a group of over 200 businesses, to support WBCSD’s drive to make global value chains more sustainable. At COP28, Alibaba Group together with WBCSD and other corporate members, advocated for “Scope 3+” carbon reduction actions by promoting the "Guidance on Avoided Emissions" report.

Upsize of Share Repurchase Program

As previously announced, during the quarter ended December 31, 2023, we repurchased a total of 292.7 million ordinary shares (equivalent of 36.6 million ADSs) for a total of US$2.9 billion, and a total of 897.9 million ordinary shares (equivalent of 112.2 million ADSs) for a total of US$9.5 billion during the 2023 calendar year. As of December 31, 2023, we had 20.0 billion ordinary shares (equivalent of 2.5 billion ADSs) outstanding. Our share repurchase program resulted in a net reduction of 3.3% in our outstanding shares in the 2023 calendar year after accounting for shares issued under our ESOP.

Our board of directors has approved an increase of US$25 billion to our share repurchase program through the end of March 2027. Following this upsize, we currently have US$35.3 billion available under our share repurchase program through the next three fiscal years. We have undertaken to update investors on our share repurchases immediately after the end of each quarter with the next update expected to be published in early April.

DECEMBER QUARTER SUMMARY FINANCIAL RESULTS

	Three months ended December 31,
	2022	2023
	RMB	RMB	US$	YoY % Change
	(in millions, except percentages and per share amounts)

Revenue	247,756	260,348	36,669	5%

Income from operations	35,031	22,511	3,171	(36)%⁽²⁾
Operating margin	14%	9%
Adjusted EBITDA⁽¹⁾	59,162	59,572	8,391	1%⁽³⁾
Adjusted EBITDA margin⁽¹⁾	24%	23%
Adjusted EBITA⁽¹⁾	52,048	52,843	7,443	2%⁽³⁾
Adjusted EBITA margin⁽¹⁾	21%	20%

Net income	45,746	10,717	1,509	(77)%⁽⁴⁾
Net income attributable to ordinary shareholders	46,815	14,433	2,033	(69)%⁽⁴⁾
Non-GAAP net income⁽¹⁾	49,932	47,951	6,754	(4)%⁽⁴⁾

Diluted earnings per share⁽⁵⁾	2.24	0.71	0.10	(68)%⁽⁴⁾⁽⁶⁾
Diluted earnings per ADS⁽⁵⁾	17.91	5.65	0.80	(68)%⁽⁴⁾⁽⁶⁾
Non-GAAP diluted earnings per share⁽¹⁾⁽⁵⁾	2.41	2.37	0.33	(2)%⁽⁴⁾⁽⁶⁾
Non-GAAP diluted earnings per ADS⁽¹⁾⁽⁵⁾	19.26	18.97	2.67	(2)%⁽⁴⁾⁽⁶⁾

____________________
(1)		See the sections entitled “Non-GAAP Financial Measures” and “Reconciliations of Non-GAAP Measures to the Nearest Comparable U.S. GAAP Measures” for more information about the non-GAAP measures referred to within this results announcement.
(2)		The year-over-year decrease was primarily attributable to impairment of intangible assets of Sun Art and impairment of goodwill of Youku.
(3)		The year-over-year increases were primarily contributed by revenue growth and improved operating efficiency that was partly offset by the increase in investments in certain businesses.
(4)		The year-over-year decrease in net income was primarily attributable to mark-to-market changes from our equity investments and the decrease in income from operations due to the impairment as mentioned above. We excluded share-based compensation expense, gains/losses of investments, impairment of intangible assets and goodwill, and certain other items from our non-GAAP measurements.
(5)		Each ADS represents eight ordinary shares.
(6)		The year-over-year percentages as stated are calculated based on the exact amount and there may be minor differences from the year-over-year percentages calculated based on the RMB amounts after rounding.

DECEMBER QUARTER SEGMENT RESULTS

Revenue for the quarter ended December 31, 2023 was RMB260,348 million (US$36,669 million), an increase of 5% year-over-year compared to RMB247,756 million in the same quarter of 2022.

Starting from the quarter ended June 30, 2023, we have implemented a new organizational structure which includes six major business groups and various other businesses (the “Reorganization”). Our segment reporting has been updated to reflect our Reorganization and how our chief operating decision maker (“CODM”) review information under our new structure.

The following table sets forth a breakdown of our revenue by segment for the periods indicated⁽¹⁾:

	Three months ended December 31,
	2022	2023
	RMB	RMB	US$	YoY % Change
	(in millions, except percentages)
Taobao and Tmall Group:
China commerce retail
- Customer management	91,694	92,113	12,974	0%
- Direct sales and others⁽²⁾	31,042	31,649	4,458	2%
	122,736	123,762	17,432	1%
China commerce wholesale	4,329	5,308	747	23%
Total Taobao and Tmall Group	127,065	129,070	18,179	2%

Cloud Intelligence Group	27,364	28,066	3,953	3%

Alibaba International Digital Commerce Group:
International commerce retail	14,954	23,260	3,276	56%
International commerce wholesale	4,870	5,256	740	8%
Total Alibaba International Digital Commerce Group	19,824	28,516	4,016	44%

Cainiao Smart Logistics Network Limited	23,023	28,476	4,011	24%
Local Services Group	13,397	15,160	2,135	13%
Digital Media and Entertainment Group	4,261	5,040	710	18%
All others⁽³⁾	50,334	47,023	6,623	(7)%
Total segment revenue	265,268	281,351	39,627	6%
Unallocated	225	374	53
Inter-segment elimination	(17,737)	(21,377)	(3,011)
Consolidated revenue	247,756	260,348	36,669	5%

	Nine months ended December 31,
	2022	2023
	RMB	RMB	US$	YoY % Change
	(in millions, except percentages)
Taobao and Tmall Group:
China commerce retail
- Customer management	230,996	240,435	33,864	4%
- Direct sales and others⁽²⁾	78,599	85,715	12,073	9%
	309,595	326,150	45,937	5%
China commerce wholesale	13,722	15,527	2,187	13%
Total Taobao and Tmall Group	323,317	341,677	48,124	6%

Cloud Intelligence Group	78,755	80,779	11,377	3%

Alibaba International Digital Commerce Group:
International commerce retail	36,686	59,376	8,363	62%
International commerce wholesale	14,905	15,774	2,222	6%
Total Alibaba International Digital Commerce Group	51,591	75,150	10,585	46%

Cainiao Smart Logistics Network Limited	58,597	74,463	10,488	27%
Local Services Group	37,909	45,174	6,363	19%
Digital Media and Entertainment Group	13,455	16,200	2,282	20%
All others⁽³⁾	143,812	140,873	19,841	(2)%
Total segment revenue	707,436	774,316	109,060	9%
Unallocated	634	900	127
Inter-segment elimination	(47,583)	(55,922)	(7,877)
Consolidated revenue	660,487	719,294	101,310	9%

____________________
(1)		During the nine months ended December 31, 2023, our segment reporting has been updated to reflect our Reorganization and the reclassification of the revenue of our DingTalk business, which was previously reported under Cloud Intelligence Group, to All others, the purpose of which was to provide DingTalk with greater autonomy to promote innovation and enhance competitiveness. Our CODM started to review information under this new reporting structure and segment reporting has been updated to conform to this change as well as the way we manage and monitor segment performance. Comparative figures were reclassified to conform to this presentation.
(2)		Direct sales and others revenue under Taobao and Tmall Group primarily represents Tmall Supermarket, Tmall Global and other direct sales businesses, where revenue and cost of inventory are recorded on a gross basis.
(3)		All others include Sun Art, Freshippo, Alibaba Health, Lingxi Games, Intime, Intelligent Information Platform (which mainly consists of UCWeb and Quark businesses), Fliggy, DingTalk (previously reported under Cloud Intelligence Group segment) and other businesses. The majority of revenue within All others consist of direct sales revenue, which is recorded on a gross basis.

The following table sets forth a breakdown of our adjusted EBITA by segment for the periods indicated⁽¹⁾:

	Three months ended December 31,
	2022	2023
	RMB	RMB	US$	YoY % Change⁽⁴⁾
	(in millions, except percentages)
Taobao and Tmall Group	59,245	59,930	8,441	1%
Cloud Intelligence Group	1,269	2,364	333	86%
Alibaba International Digital Commerce Group	(645)	(3,146)	(443)	(388)%
Cainiao Smart Logistics Network Limited	(12)	961	135	N/A
Local Services Group	(2,923)	(2,068)	(291)	29%
Digital Media and Entertainment Group	(391)	(517)	(73)	(32)%
All others⁽²⁾	(1,698)	(3,172)	(447)	(87)%
Total segment adjusted EBITA	54,845	54,352	7,655	(1)%
Unallocated⁽³⁾	(2,173)	(808)	(114)
Inter-segment elimination	(624)	(701)	(98)
Consolidated adjusted EBITA	52,048	52,843	7,443	2%
Less: Share-based compensation expense	(8,773)	(6,222)	(876)
Less: Amortization and impairment of intangible assets	(5,530)	(14,601)	(2,056)
Less: Impairment of goodwill, and others	(2,714)	(9,509)	(1,340)
Income from operations	35,031	22,511	3,171	(36)%

	Nine months ended December 31,
	2022	2023
	RMB	RMB	US$	YoY % Change⁽⁴⁾
	(in millions, except percentages)
Taobao and Tmall Group	150,099	156,326	22,018	4%
Cloud Intelligence Group	3,114	4,689	660	51%
Alibaba International Digital Commerce Group	(2,773)	(3,950)	(556)	(42)%
Cainiao Smart Logistics Network Limited	(72)	2,744	387	N/A
Local Services Group	(9,085)	(6,614)	(932)	27%
Digital Media and Entertainment Group	(1,660)	(655)	(92)	61%
All others⁽²⁾	(7,533)	(6,342)	(893)	16%
Total segment adjusted EBITA	132,090	146,198	20,592	11%
Unallocated⁽³⁾	(7,779)	(3,290)	(463)
Inter-segment elimination	(1,680)	(1,849)	(261)
Consolidated adjusted EBITA	122,631	141,059	19,868	15%
Less: Share-based compensation expense	(23,285)	(11,423)	(1,609)
Less: Amortization and impairment of intangible assets	(11,010)	(19,511)	(2,748)
Less: Impairment of goodwill, and others	(3,225)	(11,540)	(1,626)
Income from operations	85,111	98,585	13,885	16%

____________________
(1)		During the nine months ended December 31, 2023, our segment reporting has been updated to reflect our Reorganization and the reclassification of the result of our DingTalk business, which was previously reported under Cloud Intelligence Group, to All others, the purpose of which was to provide DingTalk with greater autonomy to promote innovation and enhance competitiveness. Our CODM started to review information under this new reporting structure and segment reporting has been updated to conform to this change as well as the way we manage and monitor segment performance. Comparative figures were reclassified to conform to this presentation.
(2)		All others include Sun Art, Freshippo, Alibaba Health, Lingxi Games, Intime, Intelligent Information Platform (which mainly consists of UCWeb and Quark businesses), Fliggy, DingTalk (previously reported under Cloud Intelligence Group segment) and other businesses.
(3)		Unallocated primarily relates to certain costs incurred by corporate functions and other miscellaneous items that are not allocated to individual segments.
(4)		For a more intuitive presentation, widening of loss in YoY% is shown in terms of negative growth rate, and narrowing of loss in YoY% is shown in terms of positive growth rate.

Taobao and Tmall Group

(i) Segment revenue

China Commerce Retail Business

Revenue from our China commerce retail business in the quarter ended December 31, 2023 was RMB123,762 million (US$17,432 million), an increase of 1% compared to RMB122,736 million in the same quarter of 2022.

Customer management revenue remained stable year-over-year, primarily due to healthy growth in online GMV generated on Taobao and Tmall, excluding unpaid orders, partly offset by decline in overall take rate. The overall take rate decreased slightly year-over-year mainly because the increase in GMV came from Taobao merchants.

Direct sales and others revenue under China commerce retail business in the quarter ended December 31, 2023 was RMB31,649 million (US$4,458 million), an increase of 2% compared to RMB31,042 million in the same quarter of 2022.

China Commerce Wholesale Business

Revenue from our China commerce wholesale business in the quarter ended December 31, 2023 was RMB5,308 million (US$747 million), an increase of 23% compared to RMB4,329 million in the same quarter of 2022, primarily due to an increase in revenue from value-added services provided to paying members.