Alibaba

https://asia.nikkei.com/Business/China-t...businesses

Slides: https://www.alibabagroup.com/en/ir/prese...210803.pdf

Quote:Alibaba earnings drop on increased investment in new businesses

* Net profits for Alibaba Group Holding declined 8%
* Alibaba reported revenues of 205.74 billion yuan ($31.83 billion), up 34% from the same period last year.
* operating margin narrowed from 23% to 15%.
* We are investing our excess profits and additional capital to support our merchants and invest in strategic areas to better serve customers and penetrate into new addressable markets,"
* Alibaba would expand its share buyback program from $10 billion to $15 billion "because we are confident of our long-term growth prospects."
* She said the company had already repurchased $3.7 billion in U.S. share receipts since April.

Cloud notably decelerated: 50% growth to 29%; not good. All eyes on Tencent Cloud and Hwawei Cloud (by far their biggest threat since they are directly backed by the State).

(03-08-2021, 08:47 PM)Wildreamz Wrote: https://asia.nikkei.com/Business/China-t...businesses

Slides: https://www.alibabagroup.com/en/ir/prese...210803.pdf

Quote:Alibaba earnings drop on increased investment in new businesses

* Net profits for Alibaba Group Holding declined 8%
* Alibaba reported revenues of 205.74 billion yuan ($31.83 billion), up 34% from the same period last year.
* operating margin narrowed from 23% to 15%.
* We are investing our excess profits and additional capital to support our merchants and invest in strategic areas to better serve customers and penetrate into new addressable markets,"
* Alibaba would expand its share buyback program from $10 billion to $15 billion "because we are confident of our long-term growth prospects."
* She said the company had already repurchased $3.7 billion in U.S. share receipts since April.

Cloud notably decelerated: 50% growth to 29%; not good. All eyes on Tencent Cloud and Hwawei Cloud (by far their biggest threat since they are directly backed by the State).

Tencent Cloud is backed by the State?

(03-08-2021, 09:17 PM)Choon Wrote: Tencent Cloud is backed by the State?

Sorry for confusion. My parenthesis was meant for Huawei Cloud.

(03-08-2021, 09:20 PM)Wildreamz Wrote:

(03-08-2021, 09:17 PM)Choon Wrote: Tencent Cloud is backed by the State?

Sorry for confusion. My parenthesis was meant for Huawei Cloud.

Thanks

In the Chinese Cloud space, I don't really regard Tencent Cloud as a threat:

(1) See Cloud Market Share trend. Tencent market share has been shrinking over the last few quarters. I can't find any data regarding their growth rates.
https://www.statista.com/statistics/1129...y-company/

(2) While Alibaba still has No.1 Market share at ~40%; Huawei Cloud (No.2 at ~20%) is clearly catching up, growing at >100% y-o-y:
https://www.chinainternetwatch.com/30820...-services/

Quote:" It grew strongly thanks to Internet customers and government projects, as well as key wins in the automotive sector."

There are clear signs, that government projects have been favouring Huawei Cloud. And why wouldn't they? Given that Huawei is State-backed, and Alibaba is actually majority foreign-owned and billionaire-owned, and under the cross-hairs of the State recently.

Cloud revenue (~8% of total revenue) is one of the most important metric that I am watching very closely, every quarter.

Overall, if you have not been buying before this earnings. I doubt this earnings result will change you mind (pretty ho-hum by Alibaba standards).

2c.

That Huawei is state-owned enterprise is factually incorrect!

(03-08-2021, 10:04 PM)Shiyi Wrote: That Huawei is state-owned enterprise is factually incorrect!

You are right, it's murky and complicated, I'll edit it to "State-backed". (https://en.wikipedia.org/wiki/Huawei#Ownership)

My 2 cents of the results announcement:

- As guided by Ali earlier, Ali reinvested its profits to increase spending in growth initiatives. This resulted in a 8% decrease in Adjusted EBITA. By the same token, mktplace core commerce adjusted EBITA grew at a slower rate of 6% (single-digit!).

- The bright spot was Cloud finally turning profitable at the Adjusted EBITA level, primarily due to economies of scale. While profit margin is low at just 2%, positive profit is a good sign and profit margin would most likely improve with time.

- Most important is whether with a higher level of investment, can Ali successfully further strengthen its ecosystem, to give it a more enduring competitive edge over competitors. And how much and how long this heightened investment would be.

- The good thing is Ali has the capacity to suffer pain and lower profits to build for a stronger future.

It really depends on one's qualitative views of competition, faith in Ali's ecosystem of services, quality and drive of Ali's team. Of course it helps (for the long-term value investor) if the share price continues to fall.

Based on my understanding, big tech companies have to continually invest in substantial R&D as well as sometimes acquire emerging potential disruptors("threats"), in order to maintain their market position.

With the anti-monopoly rules, Ali's e-commerce growth may not be along the same trajectory as before. There are also other major players like Douyin, Kuaishou in the online sales space.

Talking about Ali's overseas online retail e.g. Lazada SG, I wonder if the current business model is sustainable. It seems to be driving sales thru' credit card/Lazada vouchers, free/highly subsidized delivery during major events like GSS, 11.11, National Day. In fact, I think it is actually subsidizing the customers.

Notwithstanding the regulatory environment in China & the hype about tech stocks, does Ali still deserve a punch in the "punch card investing" approach ? What could be the catalysts that can drive Ali's share price significantly upwards - earnings' growth or higher valuation or ???

I do not claim to be any guru, but I cannot help but remain convinced there are investments that have higher chances to make more money for a retail investor compared to Ali, at this point in time. Not to mention there are no dividends, and need to account for stuff like exchange rate, custody, no opportunities for share lending.

(03-08-2021, 11:44 PM)dreamybear Wrote: ..

What could be the catalysts that can drive Ali's share price significantly upwards - earnings' growth / higher valuation ?

..

35% revenue growth, still in line with past trend. If this continue for a couple more years, we (investors), is expecting free cash flow (https://ycharts.com/companies/BABA/free_cash_flow_ttm) and finally market price to reflect that.

Barring further restrictions that changes the trajectory of the company. 

The reason to invest in Alibaba, is not due to highest possible returns (there are plenty of companies with the potential of growing fcf higher and/or faster than Alibaba); it's the high importance and value-add (IMO) Alibaba brings to the Chinese society (it's basically the central nervous system of Chinese commerce); and thus, high certainty of prolonged future success.

But the certainty has been diminished in recent years, somewhat (with all the regulatory crackdown).

Peace. 

(vested, small)