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Fast Reading

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an analyst from a securities firm described the current situation of alibaba local life group as follows: "autonavi made a small profit, while ele.me suffered a small loss."

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three years after its establishment, the role of the local life group has changed from relying on the group to being self-sufficient, with thrift and diligence being the key.

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at the cost of appropriately giving up growth in scale, alibaba local life group is rapidly moving towards profitability, but small and beautiful is not an imaginative story.

author | hanxing

cover source | stills from "hacksaw ridge"

over the past year and a half, the local life battlefield, which was once filled with smoke and fierce competition from all sides, has gradually returned to calm.

in the center of the battlefield, the competition between meituan and douyin has slowed down, and both sides have slowed down the pace of attack. another important player, alibaba local life group, is on the eve of profitability after leaving the big family and taking on the responsibility of its own profits and losses.

in alibaba group's latest quarterly financial report, the adjusted ebita (earnings before interest, taxes, and amortization) of the local life group narrowed significantly from a loss of 1.982 billion yuan in the same period last year to a loss of 386 million yuan, with a profit margin of -2.4%.

the management expected in the earnings call that each business will achieve break-even within one to two years. several securities analysts who have been paying close attention to alibaba told snow leopard finance that in an optimistic scenario, as the second half of the year enters the peak season, alibaba local life group may be the first to turn losses into profits in the next two quarters.

but profitability does not come without a price.

the reduction in losses achieved by reducing costs, increasing efficiency and controlling scale has brought the local life group's revenue growth rate to the lowest level in the past six quarters. since the establishment of the group and its separate disclosure in alibaba's financial report (q4 2021), only in q2 and q4 of 2022, when the epidemic was more severe, the revenue growth rate was lower than this quarter.

the current revenue of the local life group mainly comes from ele.me and autonavi. this business segment, which was completely "bought" by alibaba, has been in existence for more than three years. from its initial ambition, to the turmoil of the group split a year and a half ago, to its current thrifty and profitable development, it has delivered a phased answer sheet.

but in the local life sector where economies of scale are important, small and beautiful is not a story that can be told forever.

just one step away from profitability

alibaba local life has undergone several adjustments and management changes in the past three years, but its two core businesses have remained unchanged: ele.me, the home delivery business, and autonavi, the destination delivery business.

after fliggy was spun off independently and koubei was merged into autonavi, in alibaba's financial report statistics, ele.me and autonavi basically represented the entire local life group.

a securities analyst who has been paying close attention to alibaba told snow leopard finance that autonavi is currently profitable, and the bulk of the losses for the entire local life group still come from ele.me.

the food delivery industry usually uses ue (economic benefits generated by each food delivery order) as an important indicator. the calculation method is to divide the adjusted operating profit by the number of orders, which is often referred to in the industry as how much money is earned/lost for delivering an order. according to alibaba's financial report, in q2 2022, ele.me's ue turned positive for the first time, and has been positive for 9 consecutive quarters.

however, ue only reflects the economic benefits of the delivery process, and does not include r&d costs, marketing costs, and management costs. ele.me's current average profit per order cannot cover these costs, so it is still in a loss-making state overall.

a person close to ele.me told snow leopard finance that the ue of food delivery is highly seasonal. whether it is ele.me or meituan, q2 of each year is usually the time when the average profit per order is the highest throughout the year. "because q2 is least affected by weather and festivals, q1 is the spring festival, q3 is summer, and q4 is winter, the platform needs to make additional investments in these three quarters."

this is also one of the important factors for alibaba local life group to significantly reduce its losses in q2 this year.

although autonavi is regarded as the cornerstone of the local life group's lbs (location-based services), its commercialization pace has been relatively restrained. according to huatai securities' research report, autonavi currently has six profit models, namely technology call and upgrade service fees, third-party advertising fees, car company cooperation fees, local merchant bidding fees, commissions from aggregated taxis, and other additional value-added fees.

an analyst from a securities firm summarized the current situation of alibaba local life group as follows: "autonavi made a small profit, while ele.me suffered a small loss."

this situation may change in the next one or two quarters. q3 is traditionally the peak season for local life, and many industry insiders predict that alibaba local life will turn losses into profits as early as q3.

but some people hold different opinions. the aforementioned analyst told snow leopard finance that the q3 peak season usually refers to the in-store and hotel and travel business. alibaba local life group has a small business scale in this area and it is difficult to benefit from it. on the contrary, takeaway may suffer wider losses due to the increase in summer delivery costs.

research reports from bocom international, guosheng securities and other institutions predict that alibaba local life group will achieve full profitability in 2025, which is basically consistent with the expectations given by alibaba's management in the earnings call.

alibaba local life is on the eve of profitability, and is just one step away from success.

from relying on big trees to being self-sufficient

turning the clock back three years, the newly established alibaba local life group was still far from profitability, but it had greater room for imagination.

in july 2021, alibaba merged its three lbs businesses - autonavi, local life and fliggy - to form the life service segment, which was then managed by yu yongfu. yu yongfu launched the battle right after taking office. he described the competition in the local life sector as a protracted war that was "not fierce but very cruel", and after reorganizing the business, he focused on the home delivery business centered on ele.me and the destination delivery business centered on autonavi.

in q4 2021, the first fiscal quarter after the establishment of the local life service sector, it achieved a revenue of 12.1 billion yuan, accounting for 5% of the group's total revenue, and the adjusted ebita loss in the same period was nearly 5 billion yuan. however, yu yongfu was not in a hurry to reduce losses, but continued to explore and expand while improving operating efficiency.

during this period, alibaba's local life business continued to make moves.

in the summer of 2022, ele.me launched the 1-minute free-order event for the first time, and subsequently planned several free-order events, driving the growth of active users through subsidies and incentives such as 10 billion yuan in subsidies, city free-orders, and red envelope festivals. in august of the same year, ele.me joined the douyin mini program to provide instant delivery services for douyin users.

an insider of a food delivery platform told snow leopard finance that the market share of ele.me and meituan has long been maintained at 2.5 to 7.5. in 2022, ele.me's market share increased slightly.

autonavi's aggregated taxi-hailing platform autonavi launched a full-scale attack on didi since the beginning of 2022, quickly seizing the online car-hailing market through platform subsidies, competitive bidding, etc. according to data from the ministry of transport, the market share of aggregated online car-hailing platforms was close to 30% at the beginning of 2023.

in march 2023, autonavi announced that it would merge the ele.me in-store business (formerly "word of mouth") under the life service segment with autonavi. the former head of the in-store business, zhang liang, would report to autonavi ceo liu zhenfei instead of yu yongfu.

just a few days later, a major change swept across alibaba.

zhang yong, then ceo of alibaba, issued an internal letter announcing the launch of the "1+6+n" organizational reform, establishing six major business groups and multiple business companies under alibaba group, including alibaba cloud intelligence, taobao tmall business, local life, cainiao, international digital business, and big entertainment. under the new organizational structure, each business group and business company implements the ceo responsibility system under the leadership of the board of directors and is responsible for their respective operating results.

the local life groups, which need to be self-sufficient, quickly switched from relying on the group to attack everywhere to being frugal and managed their own affairs, thus accelerating the pace of reducing losses.

what does it mean to seize the moment?

under the new organizational structure, ele.me changed its previous aggressive subsidy policy in cities across the country, narrowed the number of key cities to about 40, and implemented a more precise subsidy policy.

autonavi is no longer aggressive. an analyst who has been paying close attention to the online car-hailing industry told snow leopard finance that starting from june 2023, as autonavi's subsidies declined, didi began to recover some of its lost ground, and mentioned in a communication with investors at the end of that year that it was optimistic about the growth of orders in 2024 due to the strategic contraction of its competitors.

data released by the ministry of transport also confirms this trend. the market share of aggregation platforms represented by gaode taxi has shown a significant decline since entering 2024, falling from a peak of nearly 30% in the previous year to around 24%.

at the cost of giving up scale growth, alibaba local life group is moving rapidly towards profitability. however, small and beautiful is not an imaginative story in the local life battlefield.

local life is a business with strong economies of scale, which is particularly evident in the food delivery business.

the r&d expenses, marketing expenses, and management expenses of food delivery are relatively fixed and will not increase with the increase in the number of orders, but will be diluted. therefore, if the average ue per order remains unchanged, the larger the order volume, the higher the profit of the food delivery business.

in q2 2019, meituan disclosed in its financial report for the first time that its food delivery division achieved positive adjusted net profit and operating profit for the first time. during the same period, meituan's daily food delivery order volume was around 23 million.

according to snow leopard finance, the average daily order volume of meituan takeaway in q2 2024 was about 58.8 million. if the market share of meituan and ele.me is 7.5 to 2.5, ele.me's order volume in q2 was about 19.6 million, which is close to the daily order volume of meituan takeaway when it achieves full profitability.

an industry insider told snow leopard finance that the industry generally believes that 20 million orders per day is the watershed between profit and loss. after reaching break-even, the increase in order volume can continue to dilute costs, thereby increasing profit levels.

whether it is in-store or online ride-hailing business, autonavi's profitability also relies on the scale of supply.

the stickiness of both ends of the online car-hailing market mainly depends on the platform's capacity. the more vehicles are available and the shorter the waiting time, the higher the stickiness of consumers, while the number of users in turn affects the stickiness of drivers. this rule also applies to the in-store field. meituan's in-store business once relied on more than 9 million merchants on the platform to resist the offensive of douyin in 2023, when the local life war was the most intense.

at this stage, alibaba's local life business is facing a dilemma: continuing to burn money may not necessarily lead to a larger scale and imagination space, while switching from offense to defense and quickly making profits by reducing costs may mean stagnant growth. the question it needs to answer is, in the cruel scale war of local life, can small and beautiful be tolerated?