Alibaba revenue disappoints, approves independent IPOs

Chinese ecommerce giant Alibaba Group Holding has announced its March quarter and full fiscal year results ending March 2023. The group reported 2% revenue growth in the first three months to March at RMB 208 billion ($30 billion) compared to the year prior, missing analysts’ estimates of 209.2 billion yuan. 

The Hang Seng Index reacted strongly to the weak results; the index dropped 0.9% to 19,546.53 at the opening bell on May 19. Alibaba Group Holding stocks dived 5.5% to HK$82.90, Baidu witnessed a 3.7% slump to HK$120.90 and Tencent Holdings dropped 2.1% to HK$330.40. Meituan, that is expected to be launched in Hong Kong in the coming weeks, retreated 4.1% to HK$129. 

The headline-worthy news to come out of this financial result, the first to be posted since the tech major announced a plan to split into six business units, are fresh details surrounding the independent IPOs.

Alibaba said the board has approved to list its Freshippo grocery business, expected to be completed within the next year. Cainiao Smart Logistics, meanwhile, has a 12 to 18 months’ time frame to go public.

“In an increasingly complex world, we have proactively transformed our organisation to strengthen the competitiveness of our businesses through greater independence to address the evolving needs of different customers and capture new opportunities,” said Daniel Zhang, chairman and CEO of Alibaba Group during the investor call.

“We are taking concrete steps towards unlocking value from our businesses and are pleased to announce that our board has approved a full spin-off of the Cloud Intelligence Group via a stock dividend distribution to shareholders, with the intention for it to become an independent publicly listed company.”

The cloud business is underperforming; it reported a 2% revenue drop from a year ago. The group intends to fully separate this division by issuing a stock dividend to shareholders, following a successful round of private fundraising. However, the current business performance can potentially impact its evaluations.

Zhang, who took direct control of the cloud unit last December, defended the revenue drop citing “external changes in the marketing environment and customer composition” for it. He is hopeful that the restructuring and innovation efforts, such as the launch of its new large language model Tongyi Qianwen, will benefit them through “greater long-term returns.”

Highlights from Alibaba’s earnings report

• Revenue: RMB208,200 million (US$30,316 million), up 2% YoY
• Income from operations: RMB15,240 million (US$2,219 million), down 9% YoY
• Adjusted EBITA (non-GAAP): RMB25,280 million (US$3,681 million), up 60% YoY
• Net income attributable to ordinary shareholders: RMB23,516 million (US$3,424 million)
• Net income: RMB21,996 million (US$3,203 million), compared to a net loss of RMB18,357 million in the same quarter last year
• Non-GAAP net income: RMB27,375 million (US$3,986 million), up 38% YoY
• Diluted earnings per ADS: RMB9.00 (US$1.31)
• Diluted earnings per share: RMB1.12 (US$0.16 or HK$1.28)

Under the restructuring, the holding group will have complete ownership of the commercially successful ecommerce businesses, Tmall and Taobao, the two were more profitable than the group as a whole in the last fiscal year.

Businesses outside of this will be “given a limited time period to access Alibaba group capital” before being cut off from the parent company for cash flow. In that scenario, it will be interesting to see the fate of loss-making ventures like food delivery and the mapping app once they are stripped of their current financial liquidity.