To The Moon

$Alibaba(BABA)$ posted Q2 earnings till September 30, 2022 also shows strong results of cost reduction and efficiency increase.

• Revenue was 207.176 billion yuan, up 3% year-on-year, which was less than the expected 208.853 billion yuan.
• The comparable earnings before interest and tax (EBIT) was 25.137 billion yuan, which was higher than the market expectation of 20.048 billion yuan.
• The net loss attributable to ordinary shareholders was 20.561 billion yuan, and the net loss was 22.467 billion yuan, while the net profit in the same period of 2021 was 3.377 billion yuan, which was mainly due to the increase in net loss caused by the decrease in the market price of equity investment of listed companies and the decrease in investment profit and loss calculated by equity method.
• Non-GAAP net profit was 33.82 billion yuan, a year-on-year increase of 19%;
• The net cash flow from operating activities was 47.112 billion yuan, a year-on-year increase of 31%; Free cash flow was 35.709 billion yuan, up 61% year-on-year.

Obviously, Ali's profits still come from the core e-commerce business. Even in the first half of the year, when the e-commerce revenue fell and all other sectors lost money, there was still 57.9 billion free cash flow. However, it should also be noted that the e-commerce sector has experienced negative year-on-year revenue growth for two consecutive quarters, which is due to the economic situation on the one hand, and the competition from live e-commerce and Pinduoduo on the other hand.

However, Ali's overall business is too complicated and unrelated to its core business, including the fastest-growing cloud business, which still lost as much as 1.4 billion. Fortunately, the revenue of the cloud business division also exceeded 20 billion yuan. In fact, the competition in the domestic cloud industry is also very voluminous, and private cloud service companies are also rising, and there is also strong competition for public business.

Ali's losses come more from offline business, including 5.7 billion for local life, 1.7 billion for international business, 700 million for digital media entertainment, 600 million for Alibaba Cloud and Cainiao, and 1.9 billion for innovative business. The overall losses are still relatively large, but the overall losses of these projects are reduced by 7.2 billion compared with the same period last year, which is also part of the cost reduction. In addition, the company's direct sales and other revenue increased by 6% year-on-year to 64.725 billion yuan, mainly due to the strong growth of Box Horse revenue, and its online order revenue accounted for more than 65%. The rookie's operating income increased by 26% year-on-year to 18.282 billion yuan, and the proportion of external income further increased to 73%.

This shows that at present, in the loss-making business, Ali still has a focus and inclines to promote the fast-growing business at present.

In addition, the company also buys back in the secondary market.

In the quarter, the repurchase cost was US $2.1 billion, and 24.3 million ADS shares were repurchased, with an average repurchase price of US $86.4. At the end of September, the total share capital was 2.625 billion ADS shares.

According to the additional disclosure in the financial report, as of November 16, the accumulated repurchase was US $18 billion, that is, US $2.7 billion in the last month and a half. Ali estimated that it was between US $58 and US $84 in the last month and a half. If the average repurchase price was US $71, about 38 million shares could be repurchased, so the accumulated repurchase was about 161 million shares and the average repurchase price was about US $112.

At the same time, the board of directors increased the repurchase quota by an additional US $15 billion, and the repurchase deadline was postponed to the end of March 2025, with a total repurchase quota of US $40 billion and the remaining repurchase quota of US $22 billion. All repurchases have been completed, costing nearly 280 billion yuan.

Since the funds repurchased by US stocks do not require cancellation, Ali can repurchase some of them and issue them to employees as stock compensation in the future. If the stock price rises in the future, it is equivalent to saving a salary expense.

To sum up

Good news: Ali's cost reduction and efficiency increase have also seen obvious effects, and the company's operating efficiency has increased, which has also created a good environment for the valuation foundation, and the maturity of new businesses is getting higher and higher. At the same time, repurchase in the secondary market increases shareholder confidence.

Bad news: The main e-commerce business is still facing challenges such as macro environment and industry competition. Innovative business and offline business are still unprofitable and facing fierce competition, and the current environment may not have a foundation for high growth.

From the investor's point of view, Ali's optimistic and pessimistic factors are there, so the stock price may still fluctuate. Just as one of the leaders of China Stocks, it is also the most important way for overseas capital to invest in China, and it also bears the confidence of foreign capital in China's economic development, so Ali's share price may fluctuate more with the fluctuation of the big environment.

$Alibaba(BABA)$ $Alibaba(09988)$ $JD-SW(09618)$