Active cost control amid conservative top-line outlook
? Alibaba reported 4Q FY3/22 revenue of Rmb204bn, up 9% yoy, and non-GAAP net
profit of Rmb19.8bn, down 24% yoy, in line with our expectations.
? Alibaba saw GMV decrease by more than 10% yoy in Apr, resulting a low single-digit
yoy revenue decline in the month. But management said logistics capability started to
recover in the past two weeks.
? We expect 1Q23F revenue to drop by 5% yoy and non-GAAP net profit to drop by 30%
yoy. Net profit yoy growth should start to recover in 2Q23F, along with the consumption
recovery and Alibaba’s cost-cutting measures.
? Reiterate Add with a new DCF-based TP of HK$151.
Results in line, with a robust user base increase
4Q FY3/22 revenue growth for China commerce, international commerce, local consumer
services, Cainiao, cloud computing, media and entertainment, and innovation initiatives
was 8%, 7%, 29%, 16%, 12%, -1% and -35% yoy, respectively. China commerce retail
sales growth was 8% yoy, with flat customer management revenue (CMR) growth and 14%
yoy growth in direct sales and others. The flat CMR growth was mainly because of a low
single-digit yoy decline in online physical goods GMV of Taobao and Tmall. Among CMR,
total advertising revenue delivered positive growth yoy, while commission revenue
recorded a high single-digit yoy decline. The overall number of annual active consumers
(AACs) at the end of FY3/22 reached 1.31bn, up 15.6% yoy and 2.2% qoq; of this, the
number in overseas markets was up 26.6% yoy and 1.3% qoq to 305m, and in the China
market, it was up 12.7% yoy and 2.6% qoq to 1,004m, with AACs in local consumer
services up 20.5% yoy and 1.1% qoq to 376m. Taobao Deals had over 300m AACs with
over 20% consumers who did not shop on Taobao or Tmall in FY3/22. Taocaicai had over
90m AACs with over 50% first-time fresh-product buyers through Alibaba. Up to 25 May
2022, Alibaba had repurchased about US$13bn in ADSs, with an unused amount of about
US$12bn under its share repurchase program.
Conservative top-line outlook for 2Q23F
As the cities hit by the Omicron outbreaks represent half of Alibaba’s China retail GMV,
Alibaba saw GMV decrease by more than 10% yoy in Apr, resulting a low single-digit
revenue decline in the month. Its supply chain and logistics capacity recovered gradually
in the past 2–3 weeks, but many backlog orders need to be filled. Consumer preferences
evolved under the Omicron outbreak, as stockpiling demand for FMCG products increased,
and consumers were less price-sensitive about these products, while demand for
discretionary products, such as apparel and 3C products, dropped. Alibaba will take this
opportunity to increase its penetration in fresh products and self-operated businesses.
Alibaba is preparing for the 6.18 online shopping season, and management noted that the
activeness and product offerings from merchants are both satisfactory. Alibaba announced
25 initiatives in five major categories to support merchants during 6.18 to reduce their
operating costs and provide them with reliable logistics services.
Cost-control measures expected to mitigate margin pressure
Alibaba will actively implement cost-control measures, such as streamlining unprofitable
businesses, improving the cash cycle, and enhancing investment efficiency in personnel,
fixed assets, sales and marketing, and other areas. Alibaba set gross margin targets for its
self-operated businesses, including Freshippo, Tmall Global and Tmall Supermarket.
Although losses narrowed yoy for these self-operated businesses, with their growing
contribution to the overall revenue mix, these businesses will continue to affect the overall
EBITA margin. The combined losses of Taobao Deals and Taocaicai should continue to
decline qoq, and Ele.me should further improve its unit economics in 2Q23F.