On the evening of August 10, Alibaba reported impressive financial results, marking the first time in six quarters that the company achieved a revenue growth rate above 10%, specifically 14%. For the three months ending June 30, Alibaba garnered a revenue of 234.2 billion yuan with a net profit of 44.92 billion yuan under non-US GAAP.
The second quarter of 2023 marks both a post-pandemic recovery period and the first quarter after Alibaba initiated its "1+6+N" organizational transformation. While Alibaba's financial performance showed positive results, it remains unclear which factors - the market rebound, the transformation, or the effects of the 618 promotion - played the primary role. The full impact of organizational changes will unfold over time.
Core E-commerce Grows Mainly from Cost-Effective Users
From a segmental view, all of Alibaba's business units experienced a broad revenue increase, and those previously running at a loss saw reduced deficits. For instance, Taotian Group's income grew 12% year-over-year, Alibaba's International Digital Business Group by 41%, Cainiao by 34%, Cloud Group by 4%, Local Life by 30%, and Entertainment also grew by 36%.
However, the most significant contributor to the financial performance remained Alibaba's core e-commerce platform, Taobao Tmall. The platform had previously witnessed declining revenues and single-digit reductions in Gross Merchandise Value (GMV) due to the pandemic and skepticism over Alibaba's competitive response and lack of innovative power in core e-commerce.
Before the 618 promotion, Alibaba's founder Jack Ma addressed the leaders of the Taotian Group, suggesting that Alibaba's past successful methodologies might not be applicable anymore and called for quick adjustments. He emphasized a renewed focus on Taobao, its users, and the internet.
After becoming operationally independent, Taotian Group adopted a strategy prioritizing users, promoting a flourishing ecosystem, and leveraging technology-driven solutions. This resulted in the core customer management revenue of the group growing 10% year-over-year this quarter. Furthermore, Taobao's daily active users (DAU) grew by 6.5%, indicating the effectiveness of the new strategies.
In a post-earnings call, Taotian Group's CEO, Dai Shan, acknowledged the preliminary success of the strategy. She noted a clear trend of users coming to Taobao for long-term operations, with the DAU growth majorly attributed to users seeking cost-effective services. This suggests Taobao is successfully drawing users and merchants from other platforms.
Dai Shan also mentioned that Taobao Tmall initiated a price war this quarter, aiming to offer quality goods at competitive prices, which attracted more consumers and improved user conversion rates. The platform saw rapid growth in younger, older, and lower-tier city user segments. Data from the 618 promotion showed that users are placing an increased emphasis on value for money, while high-end users, represented by 88VIP, are driven by new and diverse product offerings.
However, analysts on the call pointed out that Taotian Group's adjusted profit margin (EBITA) declined from last year's 44.1% to 42.9% this quarter.
In response, Dai Shan emphasized the close ties between e-commerce, macroeconomic conditions, and competitive scenarios. She remains optimistic about the future, believing that current investments will lead to more significant revenue and profit growth in the medium to long term.
Cost Cutting and Efficiency Continues, Business Operations Improve
Financially, not only did Alibaba return to growth this quarter, but it also managed to reduce expenses and enhance efficiency. The company's income costs for the quarter amounted to 1,423.47 billion yuan, accounting for 61% of revenue, down from 63% last year.
Due to workforce reductions, R&D costs decreased by about 4.5% year-over-year, while administrative expenses rose by 14.5%. The rise in DAUs was accompanied by a 10% year-over-year increase in sales and marketing expenses, amounting to 27.2 billion yuan.
This quarter, Alibaba's other business segments also performed admirably. Without the financial backing from Taobao Tmall, the pressure on these businesses to become profitable has increased.
Under Jiang Fan's leadership, Alibaba's International Digital Business Group shined with a 41% year-over-year revenue growth. Retail business income in China increased by an impressive 60%. Meanwhile, international wholesale business maintained its performance, and the adjusted EBITA loss narrowed significantly to 420 million yuan from last year's 1.38 billion yuan. In July, Jiang Fan rejoined Alibaba's partner lineup.
During the earnings call, Jiang expressed satisfaction with the recent quarters' results and believed the momentum would continue. He outlined Alibaba's overseas strategy, which is to find a unique position and offer distinct value in different countries.
"Our advantage is the supply from China. In certain countries, we prioritize cross-border businesses, while in others, we emphasize localized e-commerce. Expanding from B2B to B2C, the performance this quarter fully demonstrates the synergistic effects between different business groups. One significant reason for this is due to the improvement in our logistics service experience. We provide a global five-day delivery experience. If customers can have a highly reliable logistics experience even thousands of kilometers away, this is the best customer acquisition model. Users will definitely continue to use it," Jiang Fan stated.
The local lifestyle group's year-on-year growth rate reached 30%, but it still incurred a huge loss of 19.82 billion yuan. Cainiao turned its loss into profit, and Alibaba Cloud also went from negative growth last quarter to 4% positive growth this quarter. Even the profitability of the Alibaba entertainment sector turned positive. Overall, the operational efficiency of all businesses has improved.
If we say that the core e-commerce growth is more influenced by the positive macro environment, then the performance of other businesses is closely related to the vitality released by reforms.
However, it's worth noting that this quarter, Alibaba included self-operated businesses such as Gaoxin, Hema, Alibaba Health, and Yintai under the "other all" category, effectively hiding Hema's performance. Previously, after Alibaba announced organizational changes, Cainiao, Cloud Intelligence, and Hema were set to go public, with Hema possibly being the first to ring the bell. Although Alibaba executives did not disclose the progress of the subsidiary's IPO during the conference call, hiding Hema's performance may be related to this.
On September 10th, Zhang Yong will formally resign from his position as the Chairman and CEO of Alibaba Group and return to Alibaba Cloud. Since Alibaba's listing in 2014, this will be the 36th conference call Zhang Yong has participated in, and also his last in this capacity. "This quarter is a summary of the past 8 years and the beginning of a completely new journey. With the separation and listing of Cloud, I will be communicating with everyone in a new world," Zhang Yong said. His experience at Alibaba is a precious treasure in his life."
