news

this article is written based on public information and is only for information exchange purposes. it does not constitute any investment advice

among the second quarter reports of chinese internet listed companies, alibaba is the only one that needs to be sorted out in depth.

coincidentally, alibaba’s three-year rectification has just been completed under the official caliber, but alibaba’s own “reform and opening up” seems to have just officially arrived: from taobao’s service fee reform to the dual primary listing, to the latest taobao’s opening of the wechat payment interface, alibaba has been making frequent moves.

in this context, reviewing alibaba's second quarter financial report is quite "dualistic" and symbolic:

●as far as the financial report is concerned, except for taobao, alibaba's performance is excellent, but there is neither a growth rate that far exceeds expectations nor a surprising performance that falls short of expectations. considering that taobao's performance in a single quarter was not so satisfactory, the word that best describes alibaba's overall performance in the second quarter is "stable."

● digging into the financial report and external policy performance, we can feel that alibaba is undergoing a new round of changes and adjustments, confronting and trying to cross the deep waters with the momentum of "reform and opening up".

we will expand on the deeper logic below.

01 one fallen leaf heralds the coming of autumn

let’s first talk about alibaba’s second quarter report (the first quarter report of fiscal year 2025 in terms of us stocks).

in the second quarter of 2024, alibaba recorded overall revenue of 243.2 billion yuan, a year-on-year increase of 4% and a month-on-month increase of 9.6%. adjusted ebita was 45.035 billion yuan, a year-on-year decrease of 1%. there was a divergence between the overall revenue scale and profit level.

figure: alibaba’s overall revenue and profit for a single quarter, source: corporate financial report, jinduan research institute

figure: alibaba’s revenue by business line in a single quarter, source: corporate financial report, jinduan research institute

by business line:

the fastest growing company was alibaba international under jiang fan, with a year-on-year growth rate of 32.4%. considering that overseas business only began to increase investment and increase volume in the fourth quarter of last year, the actual growth rate did not significantly exceed expectations. of course, there was also good news. the international business reduced losses by 9% month-on-month, slightly better than expected.

the best performer was alibaba cloud, which grew 5.9% year-on-year, slightly higher than expected. however, the adjusted profit reached 2.337 billion yuan, much higher than the same period last year, reaching the highest point since its listing (second only to 2.364 billion yuan at the end of the fourth quarter of last year).

according to the financial report, alibaba cloud's excellent performance stems from the double-digit growth of its public cloud business and the triple-digit growth of ai-related products. the conference call also pointed out that alibaba cloud customers' ai-related budgets have increased significantly this year.

both cainiao and local life achieved impressive performance. cainiao achieved a year-on-year growth rate of 15.7%. although the month-on-month growth rate slowed down significantly, in the absence of a significant slowdown in alibaba international (capital expenditure on overseas logistics is higher), cainiao turned losses into profits and achieved a profit of 620 million yuan after adjusting ebita.

local life achieved the highest single-quarter revenue since its listing at 16.23 billion yuan, a year-on-year increase of 12.3%, and recorded an adjusted ebita loss of only 390 million yuan, compared with a loss of 1.98 billion yuan in the same period last year, a significant reduction in losses. combined with meituan's strong performance this quarter, the local track seems to be heading towards a flowering and fruiting period.

big entertainment and other businesses (sun art retail, hema, ali health, etc.) also have bright spots. big entertainment achieved a 4% growth despite external pressure (tencent video’s overall content quality was high in the first half of the year), while other non-core businesses recorded a loss of 1.263 billion yuan in adjusted ebita, significantly reducing losses.

taotian, the mainstay of the platform, became the last in this quarter. while gmv maintained a high single-digit growth, the growth rate of cmr (customer management revenue) was only 1%. the direct sales business was restricted by the scale and narrowing of product categories and fell by 9%. taotian's overall revenue fell by 1%, and its adjusted ebita also fell by 1%.

to sum up, the performance of departments other than taobao within the alibaba system is quite good.

this is the most counterintuitive and counter-cognitive part of the question - after all, whether it is payment, fulfillment, technical services or traffic entry, alibaba's business ecosystem is centered around taobao (chinese business) and international business. although other business lines are also growing, historically, the quarters when taobao performs well have tended to see faster growth. this quarter is very abnormal.

one fallen leaf heralds the coming of autumn. based on such counter-cognitive business and financial representations, it is not difficult to judge that alibaba is undergoing a new round of strategic adjustments and internal reforms.

02 brothers should be clear about accounts

compared with other leading internet companies, alibaba’s financial report has two biggest characteristics: it is detailed enough and diverse enough.

tencent's business disclosure is the simplest, attributing all business lines to games, enterprise services, financial technology, and advertising. meituan's business disclosure is the most intuitive, either core local business (takeout and in-store) or other new businesses.

alibaba discloses all businesses above a certain scale. although it is very friendly to investors in terms of information disclosure, there is also an unsolvable problem: as the market changes, business lines and organizational structures will inevitably need to be adjusted. at this time, the scope of the financial report will be relatively more complicated and it will be difficult to make sustainable long-term horizontal comparisons.

however, we can prove by contradiction (comparing the difference between the two periods of financial reports with different calibers) that alibaba's various business lines are experiencing a new round of "independence" at least in terms of financial accounting.：

(1) taking alibaba cloud and dingtalk as examples, financial report language is becoming more independent

this year, alibaba cloud adjusted its performance revenue for the same period last year. we can infer dingtalk’s performance: other income after restoration increased by 257 million yuan, alibaba cloud revenue decreased by 58 million yuan, and inter-divisional offset increased by 199 million yuan.

that is to say, in the second quarter of last year, dingtalk's revenue was 257 million yuan, of which 199 million yuan was overlapping revenue with alibaba cloud. for the 257 million yuan, 1% revenue contribution (of which only 1/5 may be non-overlapping business contribution), alibaba cloud's adjusted ebita fell by 490 million yuan (dingtalk loss). it should be noted that alibaba cloud's total profit before excluding dingtalk in the same period last year was only 877 million yuan. the cost burden of dingtalk's business affected more than half of alibaba cloud's profit.

the disclosure of alibaba cloud's financial report notes also reflects its eagerness to become independent. before q1 2023, alibaba cloud's financial report notes will separately state "revenue from cross-divisional transactions serving other alibaba groups." starting from q3 2023, the notes will separately disclose "excluding revenue from alibaba's consolidated businesses."

starting from this quarter, "revenue excluding revenue from alibaba's consolidated businesses" achieved positive growth in a single quarter for the first time, and external circulation revenue is on the right track, which is a big step towards independence, at least from the perspective of alibaba cloud.

(2) comparing the industry horizontally, taotian seems to be paying a “breakup fee”

let's take a look at the performance of the backbone taotian. everyone can understand that the e-commerce price war has been very fierce since the end of last year and the first half of this year. in order to maintain market share (gmv and number of orders), the cmr growth rate must be sacrificed.

what is relatively unexpected about taotian’s performance is the rapid decline in gross profit margin since the beginning of this year. after all, for taotian, which does not have a high proportion of self-operated business, the price war should theoretically affect the take rate rather than the profit margin, especially at a time when cost-cutting and fee-reducing are the mainstream.

figure: taotian’s adjusted ebita profit margin for a single quarter, source: corporate financial report, jinduan research institute

for comparison, pinduoduo, jd.com and even meituan, the leader in another field, had adjusted operating profit margins of 65.3%, 3.9% (including self-operated) and 18.2% in the second quarter, respectively, which were significantly higher than the same period last year; and alibaba's overall operating costs in the second quarter were lower than the same period last year. it is unreasonable that the adjusted ebita profit margin in the first half of the year was at a low level.

based on this, we tend to believe that this may be taotian's concentrated release of internal costs for other business lines, such as payment, cloud services, traffic, etc., where the previously more favorable internal prices are gradually being aligned with external prices.

another fact that can support this is the reform of taobao's rules: starting from september 1 this year, the annual fee will be cancelled and replaced by a 0.6% technical service fee. according to alibaba, the technical service fee is mainly used to cover the software service fees of payment, isv independent software vendors and cloud vendors.

in fact, most of these fees are within alibaba's system. in our opinion, it is easier to calculate the internal accounts in the form of commissions. the technical service fee relative to the annual fee will also drive the sustainable income of taotian's own cmr and alibaba cloud, financial services and other business lines.

therefore, taotian’s performance in the second quarter has a feeling of “independence day”. from the perspective of the internal financial accounting system, it can also prove that each business line is moving towards independence.

(3) the increase in the proportion of inter-divisional offsets also confirms that business lines are gradually becoming independent.

there is a relatively inconspicuous data in alibaba’s financial report: inter-division offset.

from the perspective of revenue logic, if an external business can be divided into both a and b, data on inter-divisional offsets will be generated. for example, the high amount of offset data between dingtalk and alibaba cloud mentioned above, when a customer purchased cloud disk services from dingtalk, the customer received an invoice and paid a sum of money.

but for dingtalk and alibaba cloud, it is both dingtalk's revenue and alibaba cloud's revenue. when the business boundaries are not completely divided (dingtalk directly purchases alibaba cloud services as the purchaser), it is necessary to rely on inter-divisional offsets to resolve the revenue disputes between the two parties: if the more inter-divisional offsets there are, it actually means that the two parties are relatively more independent. after all, if no one is willing to "donate" revenue to others, it is better to just count them all to save trouble.

figure: proportion of alibaba's inter-divisional revenue to total revenue, source: corporate financial report, jinduan research institute

as alibaba gradually adjusts its internal structure and accounting caliber, the proportion of inter-divisional revenue has grown rapidly since q2 2023, which also indirectly proves that alibaba's internal accounting is becoming more independent.

in summary, whether it is the data logic demonstrated by the adjustment of the accounting structure, the cost trend that deviates from that of peers, or the indirect evidence of implicit data, they all point to the core of alibaba’s financial logic transformation: even brothers have to settle accounts clearly.

of course, sorting out the accounts is just a superficial appearance. the real core is that alibaba is crossing deep waters.

03 ali crosses deep water

the hottest news about alibaba recently is the opening of the taobao payment interface to wechat pay. in a sense, the major settlement between tencent and alibaba not only confirms the determination to fight against monopoly, but also shows the market that a tug-of-war over traffic and e-commerce that has lasted for more than a decade is gradually coming to an end.

it took ali twenty years to figure out one thing: if you want supreme power, you cannot shirk your meticulous responsibilities.

it is obvious that even a company as powerful as alibaba is not capable of taking on such meticulous responsibilities. whether it is traffic interfaces, payment, retail or e-commerce, these foundations have left a lot of room for up-and-coming companies to break through. alibaba's vision is to become a long-lasting company for more than 102 years, so reform and opening up should be one of the essential tasks at this stage.

reform and innovation are like crossing a river. alibaba, including taobao and other business lines, have had role models and examples at different stages since their establishment, such as amazon, aws, or paypal. for a long time, the innovation and reform of alibaba's business lines were in shallow waters, and they could cross the river by feeling the stones.

but now, ali has to bite the bullet and try to cross the deep water area for two reasons:

firstalibaba needs to prove to the market that it is more than just that god-damned retailer. after all, retailers with long-lasting business all focus on fixed assets for cost expenditure and channel construction, while asset-light internet companies obviously do not have such genes.

the premise for the retail industry to break away from the price-to-sales ratio valuation framework is to have growth momentum that exceeds the industry. alibaba has chosen technological innovation, so a ten-year verification period is not short, and each business line also needs to prove that it is capable of carrying the banner of growth.

secondly, one of the core problems that has plagued alibaba in the past five years is the inconsistency of business line goals, especially when the wealth effect significantly exceeds its own development level.

there is no doubt that alibaba has achieved technological contributions that are ahead of their time with its forward-looking vision and infrastructure capabilities, and of course the times have endowed alibaba people with profit returns that are ahead of their time. when wealth accumulates, it is inevitable that meritocracy will form. after all, people will attribute their success to their own cognition and efforts, and often ignore the fact that they may have been in the elevator in the first place.

recently at the yc event, airbnb ceo brian chesky's speech was highly discussed. he believed that the conventional wisdom of running a large company is wrong: many people believe that hiring excellent employees and giving them enough space to work is one of the core of large companies to maintain their competitiveness, but in practice it is wrong because there are always people who give wrong advice to those in power.

he believes that founder mode is a more effective way of operating than manager mode, because he believes that when a company expands, hiring "professional scammers" who look professional will only bring the company down. things that seem wrong but should be done can only be done by founders, not managers.

perhaps the situation brian described is a bit extreme, but whenever a company expands, there will always be people telling you how to run a company where you are just a professional manager. we believe that the core of the problem is that for large companies, there is a huge and complex chain of interests within them, from power and positions to equity and salary, which will always form internal constraints when the company is growing rapidly.

managers are often happy to resolve conflicts through resource allocation, but under the performance-based system, no one is willing to give up opportunities that they know of, so it is difficult to use resources to drive the actual development of the company.

the same is true for alibaba. alibaba in the zhang yong era has proven that relying solely on resource allocation to drive the giant ship forward is not enough to lead the meticulous market competition. only by daring to cross the deep waters and abandoning the "crutch" of long-term reliance on historical empiricism can it once again become a leader of the times - both for alibaba as a whole and for its various business lines.

therefore, we can see that alibaba has carried out multiple rounds of adjustments in the past two years. from the departure of zhang yong, hou yi, and yu yongfu at the personnel level, to the frequent adjustments of business lines at the architecture level, the core purpose may be only one:maintaining unity of purpose。

in fact, the financial reports this year have also shown the independence of various business lines. only by figuring out the distribution of profits, sorting out the snow in front of each company, and removing internal constraints can we calmly face the stormy waves that may arise in the "deep waters".

after resolving the issues of interest distribution and internal constraints, we may be able to once again give alibaba, this giant ship that once rode the wind and waves, the expectations that it should have.