Alibaba Group reports mixed Q3 earnings
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Alibaba Group Holding Limited (BABA) released its earnings report for the third quarter of the fiscal year 2023, revealing mixed results. While the company experienced moderate revenue growth, its income from operations decreased significantly. Despite this, Alibaba remains focused on reigniting growth in its core businesses, e-commerce, and cloud computing. The company is increasing investments to enhance user experiences, drive growth in the Taobao and Tmall Group.
BABA shares have seen a volatile reaction to the news. The stock initially jumped from $76 to $82. The stock has given up those gains to slip back to the $75 area where it is searching for support.
For Q3 2023, Alibaba reported revenues of RMB 260.35 billion ( US$36.67 billion), a 5.1% increase compared to the same period last year. However, the revenue fell slightly short of the consensus estimate of RMB 260.26 billion.
The revenue from Taobao and Tmall Group, Alibaba's core e-commerce platforms, reached RMB 129.07 billion (US$18.18 billion), showing a 2% year-over-year increase. The growth can be attributed to a rise in the number of transacting buyers and order volume, although the average order value decreased.
Alibaba has been employing user engagement and price-competitive strategies, increasing interactive content, expanding product variety, and onboarding more brands and merchants. The number of merchants operating on the platform has been growing at a double-digit rate over the past four quarters.
Cloud Intelligence Group, another important segment for Alibaba, generated RMB 28.07 billion (US$3.95 billion) in revenue, a 3% increase year-over-year. The company has been actively working to enhance the revenue quality of its cloud products and services by reducing low-margin project-based contracts. The focus on public cloud offerings has proven successful, contributing to profitability improvement.
Alibaba International Digital Commerce Group (AIDC) witnessed remarkable growth with revenue of RMB 28.52 billion (US$4.02 billion), representing a 44% increase compared to the previous year. The strong performance was driven by overall growth across retail platforms, particularly the cross-border AliExpress Choice business.
The response to increasing global demand for high-quality products at competitive prices has resulted in rapid year-over-year growth for Alibaba's cross-border businesses. As a result, the company plans to continue investing in this area to sustain momentum and enhance customer satisfaction.
Despite the positive revenue growth, Alibaba experienced a 36% decrease in income from operations, which amounted to RMB 22.51 billion (US$3.17 billion). This decline was primarily due to impairments of intangible assets and goodwill related to Sun Art and Youku.
Adjusted EBITA increased by 2% to RMB 52.84 billion (US$7.44 billion). Net income attributable to ordinary shareholders was RMB 14.43 billion (US$2.03 billion), while overall net income was RMB 10.72 billion (US$1.51 billion), down 77% year-over-year. This substantial decrease was mainly the result of mark-to-market changes in equity investments and the aforementioned impairment-related income decrease.
Excluding certain items, non-GAAP net income for the quarter was RMB 47.95 billion (US$6.75 billion), representing a 4% decrease compared to the same period in 2022. Diluted earnings per American depositary share (ADS) amounted to RMB 5.65 (US$0.80), while non-GAAP diluted earnings per ADS stood at RMB 18.97 (US$2.67), both experiencing a 2% decline year-over-year.
Despite the mixed financial results, Alibaba's cash and cash equivalents, short-term investments, and other treasury investments rose to RMB 652.96 billion (US$91.97 billion) as of December 31, 2023, compared to RMB 560.31 billion at the end of March 2023. This increase was mainly driven by RMB 140.85 billion (US$19.84 billion) in free cash flow generated from operations and favorable exchange rate effects, partly offset by share repurchases and debt repayments.
In response to these results, Alibaba has announced an increase of US$25 billion to its share repurchase program, demonstrating its confidence in the company's long-term prospects. As of now, Alibaba has US $35.3 billion available under the program through the next three fiscal years.
Overall, Alibaba's earnings report for Q3 2023 presents a mixed picture. The company saw revenue growth in its major business segments but faced challenges in maintaining overall profitability due to impairments and market adjustments. With its renewed focus on e-commerce and cloud computing, along with increased investments to enhance user experiences and strengthen market leadership, Alibaba aims to reignite growth and drive its core businesses forward.