Produced by Radar Finance | Written by Xiao Sa | Edited by Shen Hai

After adjusting its core business organizational structure and management team last year, Alibaba has entered a new growth cycle of investment. Financial reports are undoubtedly the best window to observe its transformation results.

On the evening of August 15, Alibaba released its first quarterly report of the new fiscal year, i.e., the results for the first fiscal quarter of FY2025.

The financial report shows that Alibaba achieved revenue of RMB 243.236 billion in the second quarter of this year, a year-on-year increase of 4%, which was lower than market expectations and slower than the 7% growth rate in the first quarter. In addition to slower growth, Alibaba's net profit in the second quarter was RMB 24.022 billion, a year-on-year decrease of 27%; net profit attributable to ordinary shareholders was RMB 24.269 billion, a year-on-year decrease of 29%.

The financial report shows that under a series of strategies prioritizing the growth of GMV (Gross Merchandise Volume), Taobao and Tmall Group recorded high single-digit year-on-year growth in GMV in this quarter. However, the revenue of Taobao and Tmall Group still declined by 1% year-on-year, and due to the "increasing proportion of GMV generated by emerging models with a low current monetization rate within Taobao and Tmall Group," its core cash flow business, Customer Management Revenue (CMR), increased only slightly by 1% year-on-year.

During the subsequent earnings call, Alibaba's management stated that after initially stabilizing market share, progress on some of the original projects focused on improving the take rate (monetization rate) and commercialization measures would begin to accelerate in this quarter.

While Taobao and Tmall Group became a drag on Alibaba's revenue growth, Alibaba Cloud, Cainiao, and Alibaba International Digital Commerce Group (AIDC) fared quite well this quarter, with cloud business EBITA profit reaching RMB 2.337 billion, significantly exceeding market expectations; the latter two recorded double-digit revenue growth.

As for Alibaba's other businesses, after independent development, their current primary task is still to improve efficiency and reduce losses. Management expects other businesses to achieve break-even within one or two years, after which they can gradually contribute to the Group's scaled profitability.

It is worth mentioning that Alibaba continued to downsize its workforce, with the number of employees decreasing by 6,729 in the second quarter, exceeding 20,000 for the entire first half of the year.

Customer Management Revenue increased slightly by 1% year-on-year

In terms of revenue, Alibaba achieved revenue of RMB 243.236 billion in this quarter, a year-on-year increase of 4%.

Taobao and Tmall Group have traditionally been the backbone of Alibaba's revenue and profit, contributing the most to the company. However, in the second quarter of this year (i.e., the first quarter of FY2025), Taobao and Tmall Group recorded revenue of RMB 113.373 billion, a year-on-year decrease of 1%.

According to the financial report, to enhance user experience and retention, Alibaba has increased investments in strategic initiatives such as price-competitive products, customer service, membership system benefits, and technology for Taobao and Tmall business. In April this year, Taobao and Tmall launched a new AI-driven, full-platform marketing tool called "Omni-channel Promotion," which features automatic bidding, optimized target audience positioning, and visualization of performance dashboards. Previously, Alimama had already helped many merchants achieve success in online store promotion and operation using this tool.

However, during the earnings call, Alibaba's management noted that "Omni-channel Promotion" would start to show noticeable effects and progress within 6 to 12 months after its launch. A more perfectly integrated advertising system might not be ready until 12 months after the product's launch.

Furthermore, management stated that Taobao and Tmall's priority is to enhance the user shopping experience, thereby driving increased purchase frequency and GMV growth. Under this strategy, in this quarter, Taobao and Tmall Group achieved high single-digit year-on-year growth in online GMV and double-digit year-on-year growth in order volume.

However, this high single-digit year-on-year growth in GMV did not drive corresponding growth in Customer Management Revenue, the "cash cow" business.

Breaking it down, China Retail Business revenue was RMB 107.421 billion in this quarter, a year-on-year decrease of 2%; among them, the direct sales business decreased by 9% year-on-year, dragging down performance, while CRM revenue increased by only 1% to RMB 80.115 billion.

The financial report explains that the year-on-year decrease in the take rate is primarily due to the increasing proportion of GMV generated by emerging models with a low current monetization rate within Taobao and Tmall Group.

The growth disparity between CMR and GMV has also become a focus of analysts' attention during the earnings call. In response, management further pointed out that the difference in growth rates between CMR and GMV reflects a decline in the take rate. The businesses with the fastest GMV growth are those with lower commercialization rates.

For example, new product formats such as live streaming and the "Billion Subsidy" program, as well as various newly invested product formats, have brought about high user retention and repurchase rates. However, the monetization and commercialization of these new products and merchants require some time to push forward.

Alibaba has promised that in the coming quarters, the growth rate of CMR will match that of GMV, and the take rate will tend to stabilize relatively.

This is due to the company's plans to accelerate commercialization initiatives after market share stabilizes, as well as the upcoming collection of technical service fees, which will also contribute to the increase in CMR.

It is disclosed that starting in September, Alibaba will impose a technical service fee on merchants on Taobao and Xianyu, amounting to approximately 0.6‰ of the merchants' confirmed GMV, and it is expected that this service fee will gradually start contributing to revenue after nine months.

In the second quarter, revenue from China Wholesale Business attributable to Taobao and Tmall Group was RMB 5.95 billion, a year-on-year increase of 16%, primarily driven by increased revenue from value-added services provided to paid members. It is disclosed that the number of 88VIP members continued to grow by double digits year-on-year this quarter, exceeding 42 million.

Among Alibaba's other five major businesses, in the second quarter, Alibaba Cloud Intelligence Group's revenue was RMB 26.549 billion, a year-on-year increase of 6%; Alibaba International Digital Commerce Group recorded revenue of RMB 29.29 billion, a year-on-year increase of 32%; Cainiao Group recorded revenue of RMB 26.81 billion, a year-on-year increase of 16%; Local Services, Digital Media and Entertainment, and Other Businesses recorded revenues of RMB 16.23 billion, RMB 5.58 billion, and RMB 47 billion, respectively, with year-on-year growth rates of 12%, 4%, and 3%.

Net profit decreased by 27% year-on-year

In terms of profitability, Alibaba continued the trend of "increasing revenue but not profits" in the second quarter, maintaining the trend from the previous quarter.

According to the financial report, Alibaba's operating profit in the second quarter of 2024 was RMB 35.989 billion, a year-on-year decrease of 15%, mainly due to the reversal of equity incentive-related expenses of RMB 6.901 billion in the same period last year.

Alibaba's net profit in the quarter was RMB 24.022 billion, a year-on-year decrease of 27%, primarily due to a decline in operating profit and an increase in investment impairments, partially offset by changes in the fair value of equity investments held by the company; non-GAAP net profit was RMB 40.691 billion, a year-on-year decrease of 9%.

Despite the decline in profits, it is encouraging that Cainiao turned from a loss to a profit this quarter, joining Taobao and Tmall Group and Alibaba Cloud Intelligence Group as the three most profitable business segments.

Specifically, during the reporting period, Taobao and Tmall's adjusted EBITA was RMB 48.81 billion, a decrease of 1% from the same period in 2023, primarily due to increased investments in user experience and technology infrastructure, partially offset by narrowed losses in several businesses.

Over the same period, Alibaba Cloud Intelligence Group's adjusted EBITA was RMB 2.337 billion, a year-on-year increase of 155%, primarily due to product mix improvement and operational efficiency gains resulting from the company's focus on public cloud adoption, partially offset by increased investments in customers and technology.

Cainiao Group achieved an adjusted EBITA of RMB 618 million in this quarter, a year-on-year decrease of 30%. The financial report attributes this to increased investments in cross-border fulfillment solutions, partially offset by improved operational efficiency.

Among the loss-making businesses, Alibaba International, led by Jiang Fan, is still in a "cash-burning" mode, with an adjusted EBITA loss of RMB 3.706 billion in this quarter, compared to a loss of RMB 420 million in the same period last year. Management stated that Alibaba International is still in an investment phase but is optimizing efficiency to pursue healthier growth.

In addition, Local Services Group, Digital Media and Entertainment Group, and Other Businesses recorded adjusted EBITA losses of RMB 386 million, RMB 103 million, and RMB 1.263 billion, respectively, in this quarter. While Digital Media and Entertainment Group incurred a loss compared to a profit in the same period last year, the other two segments significantly reduced their losses.

For non-core businesses other than Taobao, Tmall, Cloud, and AIDC, management's goal is to significantly improve efficiency and vigorously promote commercialization to reduce losses. "It is expected that break-even can be achieved within one or two years, after which they can gradually contribute to the Group's scaled profitability."

Continued 'downsizing' and layoffs

After focusing more on core businesses, Alibaba has gradually 'downsized' its investment portfolio.

In the first quarter of this year, Alibaba sold 10 million shares of Bilibili, 8.43 million shares of Momo Inc. (parent company of Momo), and reduced its stake in Xpeng Motors, shrinking its investment scale.

On March 25, the Hong Kong Stock Exchange disclosed that on March 22, Alibaba's subsidiary Taobao China Holdings Limited completed the sale of 33 million ADSs (representing 66 million Class A ordinary shares) of Xpeng Motors, reducing its shareholding from 9.23% to 4.94%.

Taobao China realized approximately US$310 million (approximately RMB 2.26 billion) from this sale of Xpeng Motors shares.

According to public information, Alibaba continued to sell equity stakes in related companies in the second quarter. On May 31, Baozun e-Commerce announced that its board of directors announced that due to changes in Alibaba Investment Limited's equity in the company, Ms. Liu Yang had resigned from her position as a director, effective May 30, 2024.

At the same time, the board was informed that on May 30, 2024, the company's major shareholder Alibaba and Champion Kerry Inc. entered into a sale and purchase agreement, pursuant to which Alibaba agreed to sell, and Champion Kerry Inc. agreed to purchase 26.4694 million Class A ordinary shares of the company, representing approximately 14.4% of the total number of shares issued by the company as of March 31, 2024.

After the share transfer, Alibaba will no longer be a shareholder of Baozun e-Commerce, and Champion Kerry Inc. will become the company's major shareholder, as stated in the announcement.

In addition, Alibaba has transferred equity stakes in various listed companies, including YTO Express and Red Star Macalline, to Hangzhou Haoyue Enterprise Management Co., Ltd. According to Tianyancha App, Hangzhou Haoyue Enterprise Management Co., Ltd. was established in October 2023, with Taobao (China) Software Co., Ltd., Zhejiang Tmall Technology Co., Ltd., and Alibaba Group Holding Limited as its three major shareholders.

In the opinion of Shen Meng, Director of Xiangsong Capital, Alibaba's transfer of its original non-core investments to platform enterprises facilitates post-investment management on the one hand and makes it easier to reduce holdings at an appropriate time on the other.

It is worth noting that Alibaba continues to reduce its workforce. As of June 30, 2024, the company had a total of 198,162 employees, compared to 204,891 as of March 31, 2024. Based on these figures, Alibaba had 6,729 fewer employees from April to June.

As of December 31, 2023, the company had a total of 219,260 employees, resulting in a reduction of 21,000 employees over six months.

In early 2020, Alibaba founder Jack Ma famously said, "In 30 years, we will annually send at least 1,000 Alibaba employees with more than 10 years of experience into society. They should participate in social construction and join various companies."

Today, it seems that Alibaba is still sending talents into society.