My Thoughts on Alibaba's 3Q Result (XIRR)

 

Please click and read this disclaimer if you wish to continue with the contents below.


For those who have not read my previous post on Alibaba can click here.

Alibaba just released their results for the three months ended December 31, 2020. The company’s revenue was RMB 221.08 billion, a year-on-year increase of 37%; operating profit was RMB 49.002 billion Yuan, an increase of 24% year-on-year; Adjusted EBITDA (a non-GAAP financial indicator) increased by 22% year-on-year to RMB 68.38 billion; net profit attributable to ordinary shareholders was RMB 79.427 billion, a year-on-year increase of 52%. 

The general brokers consensus for non GAAP net profit is in a range of RMB54-57.3bil RMB with a median of RMB55.595bil. Ali 3Q non GAAP net profit was RMB59.2bil RMB exceeded the highest range expectation by 3.31%. 

Its MAU users in China's retail market reached 902 million. For the 12 months ended December 31, 2020, the number of annual active consumers in the Chinese retail market reached 779 million, with a single quarterly net increase of 22 million.

As of December 31, 2020, the number of online brands and merchants on the Tmall international platform has increased by 60% year-on-year. In order to better connect international brands and Chinese consumers, Tmall International continues to innovate its cross-border logistics solutions. In the December quarter, purchases of goods stored and shipped from overseas warehouses on Tmall International increased rapidly, and GMV (excluding unpaid orders) achieved a three-digit growth year-on-year.

The financial report showed that for the 12 months ended December 31, 2020, the GMV of Taobao live broadcast exceeded RMB 400 billion. In the December quarter, the company Taobao APP home page introduces the ability to "subscribe" and "stroll", further enhancing the user experience. This quarter, the page visits brought by Taobao homepage recommendations increased strongly year-on-year by more than 90%


After the impact of Covid19 epidemic in China, the demand for digitalization in the catering service industry remains strong. Ele.me continues to seize this market opportunity to attract high-quality merchants by providing digital technology solutions and other value-added services. As of December 31, 2020, the number of registered merchants has increased by more than 30% year-on-year. As the company successfully upgraded its membership system and continued to attract high-quality merchants to settle in, Ele.me’s average daily paid membership increased by about 30% year-on-year in the December quarter. As part of the new retail strategy, Ele.me continues to expand its instant delivery services to cover a wider range of commodities, such as fresh produce and daily groceries. As of December 31, 2020, the number of Ele.me's registered non-catering businesses has increased by more than 80% year-on-year.

In addition, in the December quarter, Cainiao’s revenue increased 51% year-on-year to RMB 11.36 billion (US$1.741 billion), mainly due to the company’s rapidly growing cross-border and international retail business’s increase in fulfillment orders. During the quarter, Cainiao Network achieved positive operating cash flow. Cainiao Networks continues to expand its domestic services and global intelligent logistics backbone network by deepening integration with logistics partners and providing more products and services. In China, Cainiao Network and its partners processed more than 2.3 billion orders during the Tmall Double 11 global carnival season.

More importantly, Alibaba Cloud's revenue reached 16.1 billion yuan, and the adjusted EBITA profit was 24 million yuan. This is the first time Alibaba Cloud has achieved a breakeven since its establishment in 2009. Zhang Jianfeng, President of Alibaba Cloud Intelligence, said, “Cloud computing is Alibaba’s long-term strategy. We have invested in it for eleven years. In the future, we will continue to increase technology investment and deepen the digitalization of the industry.”

The financial report shows that Alibaba Cloud’s quarterly revenue reached 16.1 billion yuan, a strong year-on-year growth of 50%. Alibaba Cloud's growth rate however is declining (76%-61%-50%). After reaching the 10 billion mark in the third quarter of fiscal year 2020, Alibaba Cloud’s quarterly revenue rose to 16.1 billion yuan this quarter. Driven by economies of scale, Alibaba Cloud continued to get closer to the profitability point and finally entered the profitability cycle this quarter.

In the past eleven years, Alibaba Cloud has independently developed China's only cloud operating system, Feitian, and ushered in the Chinese cloud era. In September last year, Alibaba Cloud announced that it has entered the 2.0 era. It will install a digital native operating system for Feitian Cloud, and work on the two wings of "cloud and Ding integration" and "cloud integration" to promote the further popularization of cloud. Not long ago, DingTalk released version 6.0, which has evolved into an enterprise collaborative office and application development platform, allowing enterprise business personnel who do not understand code to drag and develop applications, allowing enterprises to take the initiative in digital transformation.

In addition, the financial report said that Alibaba Cloud will continue to invest in technology research and development to help customers carry out digital transformation and business growth. At the Investor Day last year, Alibaba Group CFO Wu Wei said that in recent years, Alibaba has invested more than 100 billion yuan in technology and research and development each year. According to data from PricewaterhouseCoopers, in the R&D expenditure ranking of 1,000 listed companies in the world, Ali ranked first in China for three consecutive years.

The firm investment in technology has allowed Alibaba Cloud to make many breakthroughs in core technology, such as the Shenlong cloud server architecture with virtualized performance loss reduced to almost zero, the PolarDB database with 6 times higher performance than traditional commercial databases, and the world's largest liquid-cooled data Center, digital city infrastructure city brain, the world's strongest AI reasoning chip Hanguang 800, etc.

Objectively, the competition in the e-commerce track is fiercer than before, and making money is not as easy as before, but Ali is still the most comprehensive leader in this space even though the likes of Pinduoduo has affected its rocketing growth. There is a high probability that it will still get the bulk of the e-commerce track. It is the Alibaba Cloud business that can contribute to the second growth curve. Alibaba's cloud services are very powerful. It's technical moat is very deep. Alibaba is still a company worth investing in, and its valuation is not expensive.

Full disclosure, I have vested interest in Alibaba and it is currently up 23%

Snap shot of my portfolio performance as of today: Total profit for 2021: S$56,263.69. 



No comments :

Post a Comment