BABA-SWR has sounded the horn of counterattack.

Author: Liu Baodan

Editor: Zhang Xiaoling

Over the past four years, the once glorious Alibaba has been constantly adjusting and experiencing turbulence, seemingly under a curse. In 2023, the market value of BABA-SWR fell to $190.703 billion, surpassed by PDD, and by the end of the year, even the annual conference that had been held for many years was canceled.

BABA-SWR's business is also facing severe challenges. On the evening of February 7th, BABA-SWR announced its third-quarter financial report for the 2024 fiscal year, with a total revenue of 260.348 billion yuan for the quarter, a year-on-year increase of 5%, reaching a new low in nearly three quarters. The core e-commerce revenue reached 129.07 billion yuan, with a growth rate of only 2%.

Although CEO Eddie Wu described the performance of this quarter as stable, it certainly did not meet expectations.

In the midst of difficulties and setbacks, BABA-SWR is accumulating strength to rebound from the bottom, and the call for counterattack has already been sounded.

In the past six months, BABA-SWR has implemented a series of bold personnel and organizational reforms to drive performance growth, with a focus on returning to Taobao, focusing on e-commerce, and BABA-SWR Cloud.

In order to boost investor confidence, founder Jack Ma and permanent partner Joseph Tsai have recently increased their holdings, and BABA-SWR announced a new $25 billion share repurchase plan.

As China's largest e-commerce platform, BABA-SWR's future is still worth looking forward to. It will defend its position as a king with the attitude of a reformer.

Focus

The latest BABA-SWR third-quarter report is not satisfactory.

Among them, the growth rate of Taotian, which occupies half of the market, is only 2%, and the online GMV (Gross Merchandise Volume) is growing positively, but it is not outstanding compared to new players such as PDD and Douyin e-commerce.

It is worth mentioning that as an extension of e-commerce capabilities, BABA-SWR's International Digital Commerce Group (AIDC) is experiencing rapid growth.

In the third quarter, AIDC's revenue increased year-on-year, and AliExpress achieved a year-on-year growth of over 60% in orders.

Another core business, BABA-SWR Cloud, is also lackluster. In the third quarter, BABA-SWR Cloud achieved a revenue of 28.066 billion yuan, with a growth rate of only 3%; adjusted EBITA profit increased by 86%, and the profitability improved.

International logistics has become an important growth driver for Cainiao, with its revenue in the third quarter increasing by 24% to 28.476 billion yuan.

However, at present, the profitable businesses of BABA-SWR are only Taotian, BABA-SWR Cloud, and Cainiao, which has just turned around from losses. The rest of the businesses are mostly incurring losses. According to the financial report, the adjusted EBITA of the Digital Entertainment Group was a loss of 517 million yuan in the third quarter.

In addition to the Digital Entertainment Group, BABA-SWR classified Hema, Intime, Intelligent Information, Fliggy, and DingTalk as others in the financial report, with a total loss of 3.172 billion yuan, nearly doubling year-on-year.

Under pressure, BABA-SWR has also begun to shrink. BABA-SWR CFO Xu Hong said in a conference call that the company is now focusing on core businesses, with investment priorities mainly in domestic and international e-commerce and cloud computing. BABA-SWR has proposed that the company is currently in the process of revitalizing the Taotian Group. Eddie Wu stated that they will increase investment in the core user experience to support Taotian's growth and solidify its market leadership position.

The other core business, BABA-SWR Cloud, will continue to follow the "AI-driven, public cloud-first" strategy.

The synergies between e-commerce and BABA-SWR Cloud are also expected to be further demonstrated. Eddie Wu believes that deep investment and research in AI will have a positive impact on Taotian's advertising products.

While focusing on its core business, BABA-SWR has begun to accelerate the divestment of non-core assets and continues to streamline its operations.

Joseph Tsai, Chairman of the BABA-SWR Group, stated that in the nine months of the 2024 fiscal year, BABA-SWR has divested $1.7 billion of non-core assets and has also established a team to study how to sell shares of related listed companies.

He also mentioned that there are still many traditional physical retail businesses on BABA-SWR's balance sheet that are not core businesses. It would be reasonable to exit these businesses, but considering the current challenging market conditions, it will take time to achieve.

Currently, among BABA-SWR's six major businesses, Taotian, BABA-SWR Cloud, and the International Digital Commerce Group have been identified as key investments, while Local Services, Cainiao, Digital Entertainment, and other businesses may face different fates.

Recently, there have been rumors in the market about BABA-SWR selling Ele.me, Hema, Intime Department Store, and Sun Art Retail (a brand under Gaoxin Retail). BABA-SWR has repeatedly denied these rumors.

During the conference call, Daniel Zhang stated that the rumors of selling Ele.me are not true. He emphasized that Ele.me is a very important asset for the BABA-SWR Group.

As for the IPO progress of Hema and Cainiao, BABA-SWR stated that it may be delayed because the current market conditions cannot truly reflect the intrinsic value of these businesses.

BABA-SWR's series of actions indicate that the current focus is on regaining the advantage in e-commerce and empowering it with AI. This is the key battle that will determine the future.

This is an important shift. In the past decade, the internet industry has experienced rapid expansion, with most startup companies backed by BAT. However, now the entire industry is shifting towards cost reduction and efficiency improvement.

Building Momentum

In multiple dimensions, 2023 was a downturn year for BABA-SWR.

In March of last year, BABA-SWR underwent the largest organizational transformation in history, splitting into six entities in an attempt to enhance market competitiveness. However, this ambitious reform did not go as smoothly as expected.

On November 16, 2023, on the day of the second-quarter report, BABA-SWR announced that it would no longer pursue a complete spin-off of BABA-SWR Cloud and that the listing of Hema would be postponed, leading to a stalemate.

Two weeks later, on November 30, 2023, PDD officially surpassed BABA-SWR in market value, becoming the largest Chinese concept stock in the U.S. stock market with a market value of $195.887 billion. BABA-SWR's former position as the king of e-commerce was overturned. Countless BABA-SWR people witnessed this moment and felt incredulous and frustrated.

At this moment, Jack Ma made a rare internal speech, firmly believing that BABA-SWR will change, BABA-SWR will transform.

Soon, Eddie Wu embarked on bolder and more direct reforms. He took over as the CEO of BABA-SWR Cloud and Taotian, becoming a key figure in the BABA-SWR Group, Taotian, and BABA-SWR Cloud, and appointed young talents such as Wu Jia, Chu Duan, and Jia Luo to manage Taobao.

BABA-SWR shareholders also made moves in the capital market. In the fourth quarter of last year, Jack Ma increased his holdings of BABA-SWR Hong Kong-listed stocks worth $50 million, and Joseph Tsai also purchased Alibaba's US-listed stocks worth about $151 million during the same period.

Prior to this, Jack Ma had replaced SoftBank and once again became the largest shareholder of BABA-SWR.

On the night of the release of the third quarter report, BABA-SWR announced a new $25 billion (approximately RMB 179.84 billion) share repurchase plan. After the adjustment, BABA-SWR still has a repurchase quota of $35.3 billion (approximately RMB 253.934 billion) for the next three fiscal years. BABA-SWR's goal is to reduce the number of outstanding shares by at least 3% annually in the next three fiscal years.

At present, Jack Ma and BABA-SWR's series of measures have played a certain role in boosting confidence in the capital market.

BABA-SWR's market value has surpassed PDD again. On December 26, 2023, BABA-SWR's market value on the US stock market was $193.173 billion, while PDD's market value was $192.937 billion.

Recently, several investment banks including Goldman Sachs, Baird, and CICC have released research reports, expressing optimism about BABA-SWR's proactive approach to investment-driven growth and its actual actions to increase shareholder returns.

Baird pointed out that the strategic focus of BABA-SWR's management is on growth, including consolidating its domestic e-commerce market share, expanding its cross-border e-commerce business, and accelerating revenue growth in the public cloud market. These measures require increased investment in the short term, but they represent a larger competitive landscape behind the change in consumer habits.

After more than a year of organizational restructuring and changes in core executives, BABA-SWR's development direction has become clearer. It can be foreseen that in order to regain market share taken by PDD and Douyin, BABA-SWR's counterattack in 2024 will be even stronger.

A new round of e-commerce war is about to begin, and this time, BABA-SWR will be the one taking the initiative to attack.