There is no era of Alibaba, only Alibaba in the era.

On the evening of August 4, Alibaba released its Q1 financial report for fiscal year 2023. The financial report shows that in the second quarter of 2022, Ali’s revenue was 205.56 billion yuan, higher than the market’s expected 203.97 billion yuan, and almost the same as the 205.74 billion yuan in the same period last year. Adjusted EBITDA margin was 20%, above consensus estimates of 17.4%. Profit excluding share-based incentives and amortization (Non-GAAP EBITA) was RMB 34.4 billion, much higher than the market expectation of RMB 28.7 billion.

The three key indicators of revenue, profit, and profit margin are better than expected. Alibaba once rose 7% after the opening of the US stock market, but since then, affected by the news that the major shareholder Softbank has reduced its 1/3 Alibaba stock position, the increase somewhat narrowed. The day finally closed up 1.8%, and the current total market value is 258 billion US dollars.

Although both revenue and profits are declining, it is not easy to be able to remain resilient without too much impact in the context of the impact of the new crown epidemic in China from April to June.

Alibaba’s leaders are more and more like to emphasize the big environment. Zhang Yong said on the conference call: Alibaba’s current challenges, as a social micro-cell, Alibaba has come to this day because of China’s rapid development. We hope that China will become more and more in the future. The better come, the better the development, the larger environment is the foundation of survival.

Specifically, as the core segment accounting for nearly 70% of the total revenue, the revenue of Ali’s “China Business” fell by 2% year-on-year to 141.94 billion yuan. The “China Business” part consists of Alibaba’s business platform business and direct business. The specific business segments include Taobao, Tmall, Taote, Taocaicai, Hema, Tmall Supermarket, Sun Art Retail, Tmall International, Ali Health, 1688 et al.

The customer management revenue (platform business) of China’s retail commerce decreased by 10% year-on-year. Alibaba’s financial report explained that it was mainly due to the repeated outbreak of the new crown epidemic and the impact of supply chain and logistics disruptions in most of April and May, resulting in Taobao and Tmall’s physical goods. Merchandise sales were affected.

The direct business revenue in the Chinese commercial segment was 64.714 billion yuan, an increase of 8% year-on-year, which was mainly due to the healthy growth of Hema and Ali. The revenue of Ali’s direct business has begun to approach the revenue of Taobao and Tmall, becoming half of Ali’s business in China.

In addition, three points are particularly noteworthy: First, as Alibaba’s second largest revenue source, cloud computing’s revenue growth rate continued to slow down this quarter, at 10%, compared with 29% in the same period last year. Second, the loss rate of Ali’s local life business has improved significantly, narrowing from 47% to 29%; third, the international business sector has experienced the most severe decline, with adjusted profits down 52%.

At the conference call after the financial report was announced, Zhang Yong also responded to the underlying logic of Ali’s cost reduction and efficiency increase, the impact of competitors, and future growth strategies.

01 “Disorderly expansion” has come to an end, and the focus of work has shifted

Behind the higher-than-expected profit and revenue, Ali’s implementation of cost reduction and efficiency enhancement strategies in the past few quarters has begun to pay off, including the reduction of more than 10,000 employees in half a year, the substantial reduction of the investment team, the stagnation of external expansion, and the negative growth of sales expenses.

About 6,000 fresh graduates will join Alibaba this year. As of June 30, the total number of Alibaba employees was 245,700, and 13,616 older employees with higher salaries left Alibaba throughout the first half of the year.

In addition, according to previous media reports, Alibaba adjusted its strategic investment department, reducing the investment team from 110 to about 70 people. According to the data from the Venture Capital Link of the Financial Association, Ali, which has made frequent shots in the field of equity investment in previous years, only made 11 shots in the first half of this year, involving a total amount of 1.064 billion yuan.

According to IT Juzi statistics, Tencent, Alibaba, Baidu, Xiaomi, Byte, Bilibili and Meituan saw a decrease of about 60% in the number of investments in the second quarter of this year compared to the same period last year, and the number of investments in the first half of the year halved year-on-year. Against the background of anti-monopoly and preventing the disorderly expansion of capital, Internet giants have shrunk their tentacles for outward expansion.

Zhang Yong said that cost optimization is not a work from a financial perspective, but is derived from Ali’s judgment on the environment and strategic trends. Ali currently has 1 billion active consumers. “Our focus will shift from increasing the absolute number of users to being able to serve existing users well and do a good job in their hierarchical and classified operations.”

According to Zhang Yong, Taobao, Tmall, Taocaicai, Hema, 1688, etc. have constituted the consumption matrix of Alibaba’s services for different users, which can be classified to meet user needs.

“The underlying logic is that consumers’ minds are Ali’s most valuable asset, which means that users will come back without spending money. Especially when the overall willingness to consume is weak, will consumers come back on their own? Is it “tap water”? Not visiting and browsing with a willingness to spend. Even in the more difficult time of the quarter, our online users’ DAU (daily activity) and PageView (visits) were relatively stable. “

In addition to the above-mentioned platforms serving users across the country, another target for Ali to reduce costs and increase efficiency is the local service business. Zhang Yong explained that they have a more focused urban strategy and regional strategy: “LAN” businesses such as Taocaicai, Hema, and Ele.me, the core is to obtain economies of scale within the LAN and reduce costs through economies of scale .

Zhang Yong believes that it is meaningless to look at the total amount of the entire market. Only by looking at whether a particular city has achieved economies of scale can a three-dimensional perspective be formed. “Under the guidance of this strategy, we will continue to invest firmly in the selection of cities and allocation of resources, and we will continue to strengthen the parts that need to be strengthened.”

In the past fiscal year, Ali’s global active consumers reached 1.31 billion, domestic 1 billion, and 124 million Chinese consumers spent more than 10,000 yuan a year on Taobao and Tmall, spending an average of 830 yuan per month.

Whether it is the domestic market or the foreign market, it is difficult for Ali to expand the scale of users. Under the circumstance that the economic environment and the impact of geopolitics are not very clear, Ali’s focus has changed from burning money for growth to service. Good existing customers, let them spend more money on the platform, and further implement the goal of “cost reduction and efficiency increase”.

02 Looking for opportunities in the new energy field, not afraid of the impact of short videos

Previously, Ali released its annual letter to shareholders, stating that at the beginning of the fiscal year, it further clarified its three major strategies: consumption, cloud computing and globalization.

These are not difficult to understand. Consumption is Ali’s basic business, globalization is Ali’s replication of its successful domestic model to the world, and cloud computing is the second growth curve that Ali has worked hard to create for more than ten years. Zhang Yong said on the conference call that some of them can go to overseas markets through the accumulation and export of Chinese experience, and some are based on new opportunities that appear overseas, and capture this opportunity from the perspective of consumption and cloud.

The past fiscal year was the first full-year profit for Alibaba Cloud in its 13-year history. However, as the world’s third and Asia’s No. 1 cloud service provider, Alibaba Cloud’s growth rate is getting slower and slower, even slower than Amazon’s AWS, and the gap between the two is getting bigger and bigger. According to this quarter’s financial report, in the second quarter of 2022, Alibaba Cloud’s revenue was 17.685 billion yuan, a year-on-year increase of 10%. The growth rate of AWS is over 30%.

Ali’s financial report explained that Chinese Internet customers, online education customers, and some leading Internet customers no longer use its overseas services, which affected their performance this quarter. The growth of Alibaba Cloud’s business reflects growth in non-Internet industries, mainly driven by financial services, public services, and telecommunications.

Regarding the weak growth rate of cloud business, Zhang Yong said that it depends on the macro situation to understand. “In the background of the rapid growth of cloud business in the past few years, the Internet itself is a digital company that needs big data analysis and a lot of computing power. This gives us the opportunity to turn technology into a business. The next growth point is industrial digitization, and every company will change. It has become a digital company, and the proportion of non-Internet companies in the cloud business has continued to increase, with an increase of 5% year-on-year in this quarter.”

The cloud opportunity is not a cyclical opportunity but a structural one, he said. “The growth of the cloud is inseparable from the growth of the economy, so we must seize the sunrise industry, the industry with the future, and seize the opportunity to outperform the industry. New energy is a huge industrial opportunity. We first consider the opportunity from the perspective of cloud computing, The development of such a sunrise industry stands at a higher starting point. New energy is looking for opportunities to grow with the industry around cloud computing.”

In the past few years, user consumption habits have changed, and more and more users are spending time on short videos. Regarding the impact of short video e-commerce on Alibaba, Zhang Yong responded, “We are not discussing the issue between short video and e-commerce, but entertainment and e-commerce. Alibaba’s most valuable wealth is users’ mind shares, users’ consumption Come to us. In many cases, consumption is part of entertainment. Ali focuses on the sub-category of consumption in entertainment. We think this category is big enough, so we focus on this category.”

He believes that short video is a way of expressing products, and e-commerce is an industry. The platform must have a clear positioning, what needs of users it needs to serve, what is the staple food and what is dessert. This is the core positioning issue.

For example, currently on Alibaba’s mobile Taobao platform, more than half of the products are expressed in short videos, while five years ago it was mainly pictures and text. “From the earliest wireless, personalization, live broadcast to short video, I believe short video is not the last technology.”

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