Alibaba announced its fiscal 2023’s third quarter (3Q FY2023) results, delivering growth in revenue, higher income from operations and higher earnings per share over its fiscal 2022’s second quarter (2Q FY2023) results.
Alibaba’s 3Q FY2023 revenue increased 2% year on year from RMB 242.6 billion to RMB 247.8 billion.
The increase in revenue was due to stronger performance in the Cainiao and International commerce segments.
Income from operations for 3Q FY2023 increased 396% year on year from RMB 7.1 billion to RMB 35 billion.
This increase in income from operations can be mainly attributed to two reasons.
The first is a substantial year on year decrease in the impairment of goodwill in relation to the Digital media and entertainment segment of RMB 22.4 billion.
The second is a year on year reduction in sales and marketing expenses.
Alibaba incurred RMB 30.6 billion in sales and marketing expenses in 3Q FY2023 which amounted to 12% of revenue.
This level of spending was RMB 6.1 billion lower than 3Q FY2022’s expense of RMB 36.7 billion which took up 15% of revenue in 3Q FY2022.
Accordingly, 3Q FY2023’s earnings per share increased from RMB 1.27 to RMB 2.24, a marked improvement.
Investments in international commerce are starting to pay off
Revenue from the international commerce retail business increased 26% year on year from RMB 11.6 billion in 3Q FY2022 to RMB 14.6 billion in 3Q FY2023.
The jump in revenue was primarily contributed from order growth by Trendyol, its e-commerce platform in Turkey.
Adjusted Earnings Before Interest, Taxes and Amortisation (EBITA) for the segment stood at a loss of RMB 763 million for 3Q FY2023 compared to a loss of RMB 2.9 billion for 3Q FY2022.
The better performance can be attributed to reduced losses in both its e-commerce platforms Trendyol and Lazada, which operates in Southeast Asia.
Trendyol gained operating efficiency due to revenue growth and Lazada improved its monetisation rate as its operations became more efficient.
Lazada also offered more value-added services such as the Preferred Seller Programme which provided enhanced exposure and other perks at a fee to sellers on its platform.
Cainiao is spreading across South East Asia
In 3Q FY2023, Cainiao added five new international sorting centres, bringing the total overseas sorting centres in operation to 15.
These sorting centres are equipped with automated sorting technologies and management systems that enhance the overall processing efficiency for parcels and reduce delivery time to customers.
Cainiao’s revenue increased 27% year on year from RMB 13.1 billion in 3Q FY2022 to RMB 16.6 billion in 3Q FY2023.
The improvement in revenue was primarily contributed by the increase in revenue from domestic consumer logistics and from international fulfilment solution services.
Adjusted EBITA for Cainiao was a loss of RMB 12 million for 3Q FY2023, compared to a loss of RMB 92 million in 3Q FY2022.
Balance sheet strengthened
Alibaba held cash and investments amounting to RMB 539.2 billion as at 3Q FY2023, compared to RMB 446.4 billion at the end of FY2022.
The company held borrowings of RMB 159.8 billion, representing an overall net cash position of RMB 379.4 billion.
Share repurchase program boosts shareholder value
Alibaba repurchased 363.3 million shares in 3Q FY2023 for approximately US$3.3 billion.
The company had previously sought and received approval from shareholders for the share repurchase exercise, allowing the company to repurchase another US$21.3 billion worth of shares till March 2025.
Should Alibaba fully utilise its current authorisation and repurchase shares up to the stated amount, there is a possibility that the company will seek approval to increase its share repurchase program.
Share repurchases increase value to shareholders by enhancing earnings per share as there will be fewer shares in circulation once the repurchased shares have been cancelled by the company.
Should you buy Alibaba then?
A famous investor, Michael Burry of Scion Asset Management, disclosed that he now owns shares in Alibaba.
He is well known for making money betting on the US housing market crisis in 2007-2008 and is the key character featured in the movie “The Big Short”.
Alibaba’s 3Q FY2023 results have demonstrated the tech giant’s resilience, delivering increases to revenue and income from operations.
Alibaba has been able to reduce its sales and marketing expenses from 15% of revenue in 3Q FY2022 to 12% of revenue in 3Q FY2023, demonstrating efficiency gains as its investments in international commerce starts to reap returns.
Cainiao narrowed its losses to a mere RMB 12 million for 3Q FY2023 as revenue and efficiency increased.
This has contributed to Alibaba’s earnings per share almost doubling to RMB 2.24 in 3Q FY2023 from RMB 1.27 in 3Q FY2022.
China has set a gross domestic product growth target of around 5% for 2023.
Barring any unforeseen circumstances and with Alibaba’s recent performance, Ailbaba could deliver even better results in the year ahead.
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Disclosure: Alex Yeo owns shares in Alibaba.