To The Moon

After hours yesterday, Alibaba $Alibaba(BABA)$ $Alibaba(09988)$ released fourth-quarter results for fiscal year 2023 (corresponding to the first quarter of this year), with mixed data and a 6% drop in share prices.

In terms of growth, Alibaba's revenue in the fourth quarter was 208.2 billion yuan, which was lower than the analyst's expectation of 209.2 billion yuan. However, under the condition of cost reduction and efficiency improvement, the net profit greatly exceeded expectations:

In the fourth-quarter results, Alibaba described the spinoff plan in strong detail, and the company gave a specific listing time node, perhaps management hopes to rely on the spinoff to improve Alibaba's share price, but market sentiment is not high.

How bleak is the main business when it needs to spinoff to boost shareholder value?

In terms of business, Alibaba's core China Commerce had revenue of 136.07 billion yuan in the fourth quarter, down 3% from the same period last year. Customer management revenue fell 5% year on year, mainly due to declined mid-single-digit in online physical goods GMV on Taobao and Tmall, excluding unpaid orders.

Revenue from direct sales and others revenue fell 1% year-over-year, mainly due to decrease in offline store sales, which was negatively affected by COVID-19 disruption in January and seasonal volatility from an earlier Chinese New Year, as well as normalizing grocery demand due to decrease in consumer hoarding behavior post-COVID-19.

China commerce segment mainly includes China commerce retail businesses such as Taobao, Tmall, Taobao Deals, Taocaicai, Freshippo, Tmall Supermarket, Sun Art, Tmall Global and Alibaba Health, as well as wholesale businesses including 1688.com.

In addition to China Commerce, Alibaba's most favored business is the Cloud, which mainly includes Alibaba Cloud and DingTalk. In the fourth quarter, Alibaba Cloud revenue was 18.58 billion yuan, down 2% year-on-year. The year-over-year decrease in revenue of Alibaba Cloud reflected the impact of the COVID-19, as well as the impact from a top customer phasing out using overseas cloud services for its international business due to non-product related reasons.

Although the reason is reasonable, the slowdown in Alibaba Cloud's growth did not begin in the fourth quarter. Considering that Alibaba Cloud recently announced a substantial reduction in product prices, up to 50%, and then Tencent $TENCENT(00700)$ $Tencent Holding Ltd.(TCEHY)$ Cloud and Mobile Cloud announced a follow-up price reduction, it can be seen that the cloud business has also begun to more intense competition, and investors have no confidence in whether the cloud business can return to high growth in the future:

Taobao collapsed, Alibaba Cloud collapsed, and now the most interesting ones are International Commerce, namely Lazada, AliExpress, Trendyol and Daraz. In the fourth quarter, International Commerce revenue was 18.54 billion yuan, up 29% from a year earlier, mainly due to revenue growth from Trendyol, Lazada and AliExpress.

Trendyol's revenue growth was driven by subsidy efficiency improvements and strong year-over-year order growth. Lazada's revenue growth mainly benefited from the continued increase in cash flow rate and strong year-on-year order growth through the provision of more value-added services. AliExpress's revenue growth was mainly due to double-digit growth in its orders, which was accelerated by Choice, a new service offering direct sales and logistics compliance services to consumers around the world.

Cainiao reported revenue of 13.6 billion yuan in the fourth quarter, up 18% year on year, mainly driven by higher average revenue per unit of international logistics fulfillment solution services and increased demand for consumer logistics services.

Local Consumer Services, which mainly include "To-Home" and "To-Destination" businesses, such as Ele.me, Amap and Fliggy, revenue of 12.5 billion yuan in the fourth quarter, an increase of 17% over the same period last year, mainly due to the increase in orders and average orders in Ele.me, which contributed to the growth of GMV. At the same time, the cancellation of pandemic prevention and control led to a big increase in tourism.

Revenue from Digital Media and Entertainment grew by 3% in the fourth quarter. While the business has lost its future in the face of Tencent and iQiyi $iQiyi Inc.(IQ)$ , Youku's total subscription revenue grew 13% year-over-year in the fourth quarter, driven by growth in average user revenue and high-quality original content such as "Who is He?" and "The Blood of Youth". This, coupled with the normalization of demand for offline ticketing services, has driven strong growth in businesses such as Damai and Taopiaopiao.

Throughout the businesses, although China Commerce mess up, the pandemic is indeed serious in the fourth quarter. In March, Taobao and Tmall's online physical goods GMV growth (excluding unpaid orders) turned positive, mainly driven by strong growth in clothing and health products categories. It can be seen that Alibaba's e-commerce business will also rebound with the recovery of China's economy.

However, the economic data released so far are still not optimistic, such as the CPI fell to 0.1% in April, with deflation risk. In addition, PPI data is also not optimistic, and overall consumption is weak, which is also the key factor weighing on Alibaba's share price.

In addition to the macro-economy, JD.com $JD.com(JD)$ $JD-SW(09618)$ joined the subsidy war of 10 billion yuan, which also cast a shadow over Alibaba's e-commerce business. In the economic downturn, low prices are more competitive, which is also the concern of the market.

There are all kinds of negative factors,but the current valuation of Alibaba is significantly undervalued, coupled with the fact that the business spinoff can enhance shareholder value, Alibaba has the potential to reverse, but everything needs to wait for the consumer data to really pick up. At the same time, it is critical that Alibaba can resist the price war of e-commerce.