What are the factors behind Alibaba's decline?

ResearchWizard

@leehong

According to professional analysis, competition and the slow growth of the domestic economy may be the reasons for Alibaba's slow growth.

Metrics Q2 2022

Summary

Revenue: RMB 200.69 B (+29.4 % YoY)

Non-GAAP Net Income: RMB 28.5 B (-39% YOY)

In Q2 2022 Earning, Alibaba stock down 11% after release of earnings as the Revenue and EPS of the company missed the analyst estimates.

The company revenue growth is actually slowing with its business growing only 16% YOY after excluding SunArt. There are a few main segments when it comes to Alibaba. business, which I will divide into respective segments to talk about in more details.

China Commerce Retails

The first segment is China's commerce retail, where the customer management experienced the greatest slowdown in revenue growth. Customer Management generates the majority of Alibaba's revenue, which includes Taobao, Tmall, and others. This is where Alibaba earns its commission and advertising revenue. The reason behind this weakness is the increase in competition from other e-commerce players such as JD, Pinduoduo, Douyin, and others.

If we look at the earning calls of Alibaba, revenues grew slower than GMV because they had to essentially rebate money back to merchants. The concern is that this isn’t a one-time business incentive, but rather indicative of BABA over-earning in this new competitive landscape. In hindsight, perhaps the “2 choose 1” policy which was recently deemed illegal, was benefiting BABA more than we appreciated.When merchants had more choice to go elsewhere, they did. And now BABA is paying up to get them to stay.

JD posted a great earning and we have to wait for Pinduoduo earning to draw a conclusion whether Alibaba is losing to competition or its because of the Macro headwind.

Cloud Computing

In my opinion, Alibaba Cloud computing growth is quite slow compared to some of the international peers such as Google, AWS and Microsoft Azure. Even big cloud companies like Amazon who already have big chunk of revenue are still able to grow at 39% for its Cloud computing business whereas Alibaba is just growing at 33%. This shows that Alibaba cloud business is lagging behind its peers. However, one good thing to note on is that the company Cloud computing continues to achieve positive EBITDA in this quarter. They earned RMB396 million in the quarter that ended September 30 2021, compared to a loss of RMB567 million in the same quarter of 2020.

International Commerce

The international commerce of Alibaba continues to perform well with revenue growing at 33%. Alibaba International commerce mainly comprised of Lazada, AliExpress, Trendyol and Daraz continue to grew rapidly to achieve approximately 285 million AACs in the twelve months ended. As of the latest quarters, Lazada recorded over 82% YOY order growth and Trendyol recorded 80% GMV growth.

Guidance

The company gave a poor guidance as they revised their guidance from 30% YOY growth this years to 20%-23% growth in their Fiscal 2022. The adjustment primarily reflects lowering of commerce revenues that include both direct sales and the customer management revenue. The management revised their guidance mainly blaming slower than expected domestic consumption growth in China.

My takeaway on Alibaba Earning Reports

  1. Competition is actually hurting Alibaba 's revenue growth. Whether they are losing to competition or its because of macro headwind due to slow domestic consumption growth can be conclude after Pinduoduo earning.
  2. Cloud growth is slow compared to its peers.
  3. The end of 2 Choose 1 Policy is hurting Alibaba revenue growth as well.
  4. The company international commerce continues to perform well with 33% YOY growth rate.
  5. Guidance provides by the company is poor.
  6. I am bullish on Alibaba previously, but this earnings really reduced my level of confidence of the company.
//发表于 2021-11-22 10:49
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