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Revenue increased, but profits also decreased a lot - this is the message revealed in Alibaba's second quarter 2024 financial report.

On the evening of August 15,Alibaba released its second quarter financial report for 2024, with revenue of 243.236 billion yuan in the quarter, a year-on-year increase of 4%.; Net profit attributable to ordinary shareholders was RMB 24.269 billion, down 29.31% year-on-year; under non-GAAP standards,Alibaba's net profit fell 9% year-on-year to 40.691 billion yuan.Regarding the decline in net profit, Alibaba explained that it was mainly due to a decrease in operating profit and an increase in investment impairment.

Focusing on specific business segments, compared with Taotian Group, whose revenue and net profit both declined, Alibaba's best performer this quarter was Alibaba Cloud, with revenue of 26.549 billion yuan, a year-on-year increase of 6%, and strong recovery in profitability, with adjusted EBITA of 2.34 billion yuan, a year-on-year increase of 155%; Alibaba International Digital Business Group's revenue was 29.293 billion yuan, a year-on-year increase of 32%, but the growth rate slowed down compared with the previous quarters; Cainiao Group, Local Life Group, and Greater Entertainment Group's revenues were 26.811 billion yuan, 16.229 billion yuan, and 5.581 billion yuan, respectively, a year-on-year increase of 16%, 12%, and 4%. In addition, the quarterly operating performance of Gao Xin Retail, Hema, Ali Health, and Lingxi Interactive Entertainment has also improved.

After the financial report was released, Alibaba's US stocks fell before the market opened, but rebounded at the opening. As of the close, it was reported at US$79.54/ADS, up 0.09%, with a total market value of US$192.342 billion. On August 16, Alibaba's Hong Kong stocks closed at HK$80.1/share, up nearly 5%, with a latest market value of HK$1549.573 billion.

Photo by Ma Yunfei

Taotian’s business is “falling behind”?

As the "backbone" of Alibaba, Taotian Group was the only one among the six major business groups that experienced negative revenue growth in the quarter.Breaking down Alibaba's revenue data for the quarter, of the total revenue of 243.236 billion yuan, 113.373 billion yuan came from Taotian Group, a year-on-year decrease of 1%; adjusted EBITA (earnings before interest and taxes) was 48.81 billion yuan, also a year-on-year decrease of 1%.

In the second quarter of the "618" promotion, both revenue and profit showed negative year-on-year growth, and Taotian Group's performance was obviously lower than market expectations. Specifically, in this quarter, Taotian Group's revenue from China's retail business fell 2% year-on-year to 107.421 billion yuan. Among them, customer management revenue (CMR) increased by 1% year-on-year to 80.115 billion yuan, mainly due to the high single-digit year-on-year growth of online GMV, but partially offset by the decline in commission rates. Direct sales and other revenues from China's commercial retail business were 27.306 billion yuan, a year-on-year decrease of 9%. This was mainly due to the year-on-year decline in sales of consumer electronics and electrical appliances caused by Taotian's reduction of several direct sales businesses.

besides,This quarter, thanks to the increase in revenue from value-added services provided to paying members, the growth rate of Taotian Group's China wholesale business significantly exceeded that of its retail business, with revenue of 5.952 billion yuan, a year-on-year increase of 16%.

In the conference call after the financial report, Wu Yongming, CEO of Alibaba Group and CEO of Taotian Group and Cloud Intelligence Group, said that Taotian's market share showed a gradually stable trend. In the quarter, GMV and order volume grew steadily. As of the end of the quarter, the number of 88VIP members had reached 42 million. "We will continue to explore and improve member rights, products and service experience to cope with the growing group of high-quality members. In TTG's operating strategy, we focus on enriching and diversifying products, while also focusing on investment and improving the shopping experience. We continue to improve the matching efficiency of products and traffic to ensure stable and sustainable growth. With the continued growth of order volume and GMV, we are gradually advancing monetization, including the launch of new marketing tools. We expect CMR growth to gradually synchronize with GMV growth in the next few quarters."

In recent years, with the increasingly fierce competition in the e-commerce industry, Alibaba and JD.com, the two e-commerce giants, have encountered unprecedented challenges in revenue growth. The strong rise of Pinduoduo and the sudden emergence of live-streaming e-commerce represented by Douyin have undoubtedly brought huge market pressure to traditional e-commerce giants.

This trend is clearly reflected in the latest financial report data. Before the U.S. stock market opened on the evening of August 15, JD.com announced its second quarter results for 2024. Its revenue for the quarter was 291.4 billion yuan. Although it still maintained a growth trend, the year-on-year growth rate of 1.2% slowed down compared with the previous quarter. Specifically, JD.com Group's core business, JD Retail, achieved revenue of 257.07 billion yuan in the second quarter, a year-on-year increase of 1.5%. However, this growth rate has also declined significantly compared with the 4.85% growth rate in the same period last year.

It is worth mentioning that at the earnings conference, Alibaba Group Chief Financial Officer Xu Hong said that Alibaba plans to charge a technical service fee to merchants on Taobao and Xianyu starting in September, which is about 0.6% of the basic software service fee. "This part of the fee will be levied based on the merchant's confirmed receipt GMV. The charging ratio will be implemented after fully considering industry practices and adopting merchant feedback. We will also fully consider the situation of small and medium-sized merchants."

Xu Hong further mentioned that this will also help improve Taotian’s monetization rate, and it is expected that the collection of service fees will gradually begin to contribute to revenue in the remaining quarters of this fiscal year.

In terms of business segments,Alibaba International Digital Business Group (AIDC), which has already ranked second in terms of revenue, continues to lead with a revenue growth rate of 32%., revenue for the quarter was 29.293 billion yuan, mainly driven by the growth in orders and increased monetization rate of AliExpress Choice. However, AIDC's adjusted EBITA loss this quarter widened significantly to 3.706 billion yuan, compared with a loss of 420 million yuan in the same period of 2023, a year-on-year increase of 782%. The financial report explained that this was mainly due to increased investment in the cross-border business of AliExpress and Trendyol, which was partially offset by a significant reduction in Lazada's operating losses.

At the earnings conference, Jiang Fan, co-chairman and CEO of International Digital Commerce Group, said that in Southeast Asia, Lazada achieved monthly EBITDA profitability for the first time in July. "In summary, our strategic focus is twofold. On the one hand, we will improve the operational efficiency of all business units, and on the other hand, we will actively invest in key markets to drive high-quality growth and scale, with the goal of achieving greater profitability in the future."

Alibaba Cloud returns to growth

Compared with Taotian Group, Alibaba Cloud, which is also the highest priority of the group, is "accelerating".

This quarter, Alibaba Cloud, which focuses on the strategy of "AI-driven, public cloud first", saw revenue increase by 6% to 26.549 billion yuan; adjusted EBITA increased by 155% year-on-year to 2.337 billion yuan, compared with only 916 million yuan in the same period last year, and its profit growth rate ranked first among the six major business groups. Alibaba Cloud said that this growth was mainly due to its focus on public cloud strategy and improved operational efficiency. However, the profit growth was partially offset by continued investment in customers and technology.

The financial report pointed out thatAlibaba Cloud's external revenue (excluding cloud revenue from Alibaba's affiliated companies) also grew 6% year-on-year, which was mainly due to the increase in the adoption rate of AI-related products, and the double-digit year-on-year growth of public cloud business. Among them, the revenue of AI-related products continued to maintain triple-digit growth in this quarter after achieving triple-digit year-on-year growth in the previous quarter.

The latest data shows that the download volume of Tongyi Qianwen open source models has exceeded 20 million. On the other hand, Alibaba Cloud has significantly reduced the prices of 9 major models, which has stimulated the use of Alibaba Cloud AI products. The financial report disclosed that the number of paying users of Alibaba Cloud AI platform "Bai Lian" has increased by more than 200% compared with the previous quarter.

At the earnings conference, Wu Yongming pointed out that the cloud gives developers the convenience of debugging large models, and more and more users will give priority to the Alibaba Cloud platform, which strategically promotes the formation of a closed business loop. "We are the only manufacturer that provides open source models and AI cloud services at the same time. I think the two business strategies are completely matched." In addition,Alibaba Cloud's external revenue is expected to resume double-digit growth in the second half of the fiscal year.

Wu Yongming said at the earnings conference that in addition to the two core businesses of e-commerce and cloud, Alibaba evaluated and analyzed the product capabilities of the group's other Internet technology businesses and the current market competition, and readjusted its business strategy, that is, most businesses will prioritize commercialization capabilities while maintaining product competitiveness. "We estimate that most businesses will gradually achieve break-even within 1 to 2 years and gradually begin to contribute to scale profitability."

Judging from the financial report, in the quarter, local life losses were significantly reduced, with losses narrowing to 386 million yuan from 1.982 billion yuan in the same period last year; the adjusted EBITA of the large entertainment sector was -103 million yuan, compared with 63 million yuan in the same period last year; in addition, other divisions including Gao Xin Retail, Hema, Alibaba Health, Lingxi Interactive Entertainment, Intime, Smart Information, Fliggy, DingTalk, etc. had an adjusted EBITA loss of 1.263 billion yuan, compared with a loss of 1.733 billion yuan in the same period last year.

It is worth noting that Alibaba's personnel adjustments are still ongoing this quarter. As of June 30, 2024, the group had a total of 198,200 employees, a decrease of 6,729 from the previous quarter.