If you do not know about the Alibaba bull case, you will find everything you need here.
Overview.
There isn't anything wrong in this quarter & the company is actually showing the strength we wanted after a weaker year.
Revenue. $38.19B | $38.38B | +0.50%
EPS. $2.66 | $2.93 | +10.15%
$1.3B of buyback.
Business.
In a few words, the bull case plays out with three key points.
Growing consumption in China & Asia in general as the population in the region grows their buying power.
Growing usage & margin of their Cloud & AI services as Chinese companies will turn themselves towards local services, hence a huge market potential.
Growing consumption & profitability of the international e-commerce platform.
And things are prertty good.
Local E-Comerce.
The management expressed quarters ago their wish to redesign, optimize & change the dynamics of their local business. It didn't please the market at the time but they now express that the newly found growth is due to those changes.
“During this quarter, customer management revenue at Taobao and Tmall Group grew 9% as a result of initiatives to enhance user experience and effective monetization”
The result is a rapid growth due to higher GMV & take rate with slightly lower margins.
The difference between the customer management & direct sales revenue is due to those business modifications as they changed their monetization plans.
And they intend to continue down that road, which should finally please the market as now they have proof that those expenses are generating an accelerating growth.
“We will continue to execute against our strategic priorities in e-commerce and cloud computing, including further investment to drive long-term growth”
Cloud & AI.
I believe the narrative shared on the bull case was the right one.
China is probably behind in terms of AI & computing power capacities but not so much in terms of brains and DeepSeek showed that. They will need AI services & those can only come from local companies as the government won't allow U.S. data collection. Alibaba can become the number one provider for those & demand is already rising fast.
“AI-related product revenue achieving triple-digit growth for the sixth consecutive quarter. Looking ahead, revenue growth at Cloud Intelligence Group driven by AI will continue to accelerate.”
This is just the beginning for this part of their business but as China wakes up to AI & starts to build services, demand will certainly follow the path of America, leading to strong revenue growth & higher margins.
International E-Comerce.
There isn't much to comment here. The holiday period drove higher traffic & growth mainly came from AliExpress & Trendyol. The story remains the same, accepting an unprofitable business in exchange for market acquisition.
The losses are largely offset by the rest of the company as we'll see later.
Cainio, Local Services & Entertainment.
Rapidly, as those are really bonuses to the bull case & not really interesting.
Cainiao continues to be flat but once again profitable. It adds value to the e-commerce to have a shipping business but it is only here for convenience.
Local Services Group is getting really interesting with very healthy growth & getting almost profitable due to operating efficiency improvements. Ele.me remains an interesting app in this branch which could yield great returns.
Other business is also growing double digits but still unprofitable, following the same narrative as the international e-commerce.
Entertainment isn't relevant.
Revenues.
Lots of things to go over here. But before diving into the company's revenues, I want to review the profitable & unprofitable businesses for the quarter.
Profitable: Chinese E-commerce, Cloud & AI, Cainiao.
Unprofitable: International E-commerce, Local Services, Entertainment & Others.
Keeping in mind that Alibaba's business model remains the same, to leverage its Chinese e-commerce profitability to build other services, focusing on market penetration before profitability.
Now to the company itself.
I will focus on the nine months ending but the picture is relatively the same QoQ, I just prefer longer timeframes.
Revenue grew 5.6% YoY & most importantly, operating margins increased from 13.7% to 14.8% in the same period. This partly comes from higher product margins with AI & Cloud - still a very tiny portion of revenues, but mainly from better execution.
Depending on what you want to include in net revenues, final net income increased 53.1% year over year & margins increased from 10.6% to 15.4%.
But yes, to be transparent, this growth includes more than their own business as it counts interest on cash & gains from other businesses Alibaba owns stakes in but doesn't directly operate. I personally include everything as those come mainly from Ant Group and end up being usable cash.
But if you were to exclude it & keep interest on cash - as this remains part of the company's revenue, revenues for the nine months ending are up 37.6% & margins increased from 11.2% to 14.7%.
Bottom line is, however you want to see it, Alibaba's business is growing, accelerating & being optimized.
On the cash side, Alibaba closed the year with $44B of net debt for $5B of free cash flow for the quarter ending, with most expenses used for capital expenditure for AI & Cloud services and return to shareholders - buybacks & dividends.
Really strong.
My Take.
This is a geat quarter, there are no other words. The narrative remains the same; leveraging a growing & profitable business to build others & they are doing this well as we see revenue growth in all important - parts of the bull case, branches.
The AI & Cloud branch is the reason why I chose Alibaba over any other Chinese company & it seems to prove me right as the demand for those services is growing rapidly & should continue to do so, while being already profitable.
The company continues to stack cash & use it for return to shareholders, having decreased the shares outstanding by 7% in a year & still having plenty of powder to buy back more - although they won't be as cheap now.
The bull thesis is just playing out. And I enjoy it.