Produced by | Huabo Business Review

One and a half months ago, the State Administration for Market Regulation announced that Alibaba Group had completed its three-year rectification and achieved good results. However, three years have passed, and everything has changed significantly. The market values of technology giants such as Microsoft, Apple, Google, X, and NVIDIA have doubled, and even Amazon, Alibaba's former main competitor, has once surpassed the $2 trillion mark in market value. In contrast, Alibaba's market value has halved, currently accounting for less than one-ninth of Amazon's. Finally, with the successful completion of the rectification and the steady recovery of its e-commerce business, Alibaba is gradually shaking off the shadows of the past and regaining market favor. According to Eastmoney.com data, Alibaba (NYSE: BABA) surged by over 40% from September to October, rocketing from $83 per share to $117, with its market value briefly climbing to RMB 2 trillion.

01

Regaining Confidence

Before being 'rehabilitated,' Alibaba successfully transitioned from a dual primary listing on the NYSE and HKEX to an independent listing on the HKEX on August 28. This strategic adjustment Endowed with Alibaba independent pricing power on the HKEX, adding more flexibility to its future development. As Alibaba's roots in the Hong Kong stock market deepen, more and more investors are focusing on and investing in this e-commerce giant. Furthermore, on October 14, 2024, Hang Seng Indexes announced that Alibaba-W (09988.HK) will be officially included in the Hang Seng Stock Connect Indexes and other index series after the market close on October 25, 2024, with the change taking effect on October 28, 2024, due to its inclusion in the Stock Connect program and meeting the rapid inclusion criteria for relevant indexes. This news is undoubtedly positive for Alibaba. According to Zhitong Finance APP data, Alibaba topped the list of net inflows on the Stock Connect program with a net inflow of RMB 2.908 billion. Inclusion in the Stock Connect program means that Alibaba will attract more investment opportunities and a broader investor base, especially mainland Chinese investors, who will be able to invest in Alibaba shares more conveniently through the program. This will not only enhance Alibaba's market position but also bring more financial support and market attention to the company.

Institutions such as Goldman Sachs are optimistic about Alibaba's inclusion in the Stock Connect program and predict that southbound funds could potentially bring in USD 15 billion to USD 16 billion in capital inflows for Alibaba. In addition to enhancing its market position, Alibaba has also sent positive signals to the market through share repurchases. On the evening of October 2, 2024, Alibaba announced that during the quarter ending September 30, the company had repurchased 414 million ordinary shares at a cost of USD 4.1 billion. Meanwhile, Alibaba stated that under the share repurchase plan authorized by the board of directors, it still had a remaining repurchase quota of USD 22 billion, valid until March 2027. This means that Alibaba will continue to implement its share repurchase plan in the coming years, providing investors with more investment opportunities and earnings guarantees.

02

A Long Road Ahead

However, Alibaba's journey ahead is not without challenges. Alibaba Group's first-quarter financial report for fiscal year 2025, released on August 15, showed that while the company maintained an overall positive momentum, its overall revenue faced downward pressure, with various business segments exhibiting different growth trends. According to the financial report, as of June 30, 2024, Alibaba's revenue for the quarter was RMB 243.236 billion, a year-on-year increase of 4%, but operating profit decreased by 15% year-on-year, and net profit attributable to ordinary shareholders and net profit both declined year-on-year, indicating challenges in the company's profitability. Alibaba has six major business groups: Taobao & Tmall Group, Cloud Intelligence Group, Alibaba International Digital Commerce Group, Cainiao Network, Local Services Group, and Digital Media and Entertainment Group. Among them, Taobao & Tmall Group, as Alibaba's core business, recorded revenue of RMB 113.373 billion for the quarter, a year-on-year decline of 1.37%, making it the only segment among the six to experience a year-on-year decline in growth. Specifically, revenue from Tmall Supermarket, Tmall Global, and other direct-sales businesses decreased by 9.48% compared to the same period last year. However, there were also positive aspects, with gross merchandise volume (GMV) growing by a high single-digit percentage year-on-year, the number of buyers, purchase frequency, and order volume all increasing by double-digit percentages year-on-year, and the number of 88VIP members continuing to grow, exceeding 42 million.

To revitalize Taobao & Tmall Group, Alibaba is adopting a low-price strategy to enhance consumer experience and drive GMV growth. However, implementing this strategy requires time and resource investment, and significant results may not be immediately visible. In contrast, the Alibaba International Digital Commerce Group (AIDC) has emerged as one of Alibaba's fastest-growing segments, with revenue growing by 32% year-on-year to RMB 29.293 billion, driven by a 38% increase in international retail commerce. Cainiao Network and Local Services Group also exhibited relatively stable growth trends. In the first quarter, Cainiao's revenue increased by 16% year-on-year to RMB 26.811 billion, primarily driven by growth in cross-border logistics fulfillment solutions revenue. Local Services Group's revenue also increased by 12% year-on-year to RMB 16.229 billion. However, the financial report also revealed issues in Alibaba's cash flow management. For the quarter, the company's net cash flow from operating activities was RMB 33.636 billion, a year-on-year decrease of 26%, and free cash flow was RMB 17.372 billion, a year-on-year decrease of 56%. Two consecutive quarters of weak cash flow could have an impact on the company's capital operations and business development.