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Alibaba Doubles Down on European Logistics

Alibaba Group had its slowest year-over-year growth rate since listing as a public company in the U.S. in 2014, with revenue increasing 10 percent to 242.56 billion yuan ($38.1 billion) in its third quarter. The Chinese e-commerce giant reeled in net income of 19.22 billion yuan (approximately $3 billion) on earnings per American depositary share (ADS) of 16.87 yuan ($2.65).

Both revenue and adjusted diluted earnings per ADS missed estimates from Wall Street analysts polled by Refinitiv, which expected sales of $38.9 billion and adjusted EPS of $2.56.

In a Nutshell: The disappointing quarter comes as tech giants in China continue to face government scrutiny and tightened regulations. Alibaba has not been able to evade either front, being hit with an 18.23 billion yuan ($2.8 billion) fine by regulators last April as part of an antitrust investigation.

Alibaba has shifted how it reports for different operating segments across the business. The marketplace operator replaced what was once called “core commerce,” now splitting up its China and international retail businesses into different reporting categories. It has also broken out figures for its logistics arm Cainiao and local consumer services, which includes its on-demand delivery platforms like Ele.me and Taoxianda.

Annual active consumers across the global Alibaba ecosystem reached approximately 1.28 billion as of Dec. 31, 2021, an increase of approximately 43 million from the total as of Sept. 30, 2021.

E-commerce marketplaces such as Tmall and Taobao, which are part of Alibaba’s China commerce business, saw online gross merchandise volume (GMV) grow in the single digits year-over-year, primarily due to slowing market conditions as well as competition.

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The GMV number was largely helped by the record 540.3 billion yuan ($84.5 billion) generated during the annual 11-day 11.11 Global Shopping Festival. But even this event only provided a GMV boost of 8.5 percent year over year, the lowest growth since the launch of the shopping festival. GMV and transaction volume do not translate into direct revenue for Alibaba.

By categories, year-over-year GMV growth for apparel, accessories and consumer electronic categories were slower than overall average growth, while growth in the fast-moving consumer goods (FMCG) and home furnishing categories were faster.

During the quarter, paid orders on the manufacturer-to-consumer Taobao Deals marketplace grew more than 100 percent year-over-year.

But Alibaba’s biggest portion of revenue, the metric known as customer management revenue (CMR), contributed to the e-commerce giant’s slide. CMR, which is the revenue Alibaba gets from services sold to merchants on Taobao and Tmall, came in at 100.09 billion yuan ($15.8 billion), a 1 percent year-on-year fall.

CMR constitutes 41 percent of total revenue at Alibaba, while direct sales, which generated 21 percent year-over-year growth to 67.91 billion yuan ($10.7 billion), reeled in 28 percent of the company’s total revenue. The direct sales and others segment includes revenue from Alibaba’s retail businesses including Sun Art, Tmall Supermarket and grocery chain Freshippo.

When accounting for Alibaba’s reporting changes, revenue from Cainiao, which includes its domestic and international one-stop-shop logistics services and supply chain management solutions, increased by 15 percent year over year to 13.1 billion yuan ($2 billion) this quarter, primarily due to the increase in penetration of cross-border and international commerce retail businesses, as well as the jump in revenue from value-added services provided to merchants.

During the quarter, 67 percent of Cainiao’s total revenue was generated from external customers, while daily average package volume delivered through its global delivery network exceeded 5 million.

The logistics wing is also furthering its global reach, commencing operations at four self-operated sorting centers in Western Europe during the period, making a total of seven self-operated sorting centers in the region. These sorting centers are designed to improve parcel delivery speed and enable global and local merchants to better serve their consumers in key European countries.

Alibaba is also expanding coverage of its Cainiao Post last-mile delivery network across more rural areas throughout China. The number of Cainiao Posts in rural areas more than doubled year-over-year as of Dec. 31, 2021.

The company published its inaugural Alibaba Carbon Neutrality Action Report in December 2021.

Alibaba incorporated a three-tier ESG governance framework to oversee, enable and support its carbon neutrality targets and broader ESG goals. The company set the goal to reach carbon neutral operations by 2030, along with a commitment to achieve 1.5 gigatons of platform decarbonization by 2035.

To achieve these targets, the e-commerce giant will leverage technology to drive energy efficiency; progressively upgrade its energy mix with adoption of clean energy; and actively engage in carbon reduction, removal and offset initiatives.

Net Sales: Revenue was 242.58 billion yuan ($38.1 billion), an increase of 10 percent year-over-year that was primarily driven by the 7 percent revenue growth of the China commerce segment to 172.23 billion yuan ($27 billion).

Alibaba’s international commerce segment increased 18 percent year-over-year to 16.45 billion yuan ($2.6 billion). Revenue from the international commerce retail business increased by 14 percent to 11.61 billion yuan ($1.8 billion), primarily due to the growth in revenue generated by Lazada. Revenue from the international commerce wholesale business increased by 29 percent to 4.8 billion yuan ($765 million), primarily due to increase in the number of paying members on Alibaba.com.

The company’s cloud segment grew 20 percent year-over-year to 19.54 billion yuan ($3.1 billion), while the local consumer services segment rose an even larger 27 percent year-over-year to 12.14 billion yuan ($1.9 billion).

Net Earnings: Net income attributable to ordinary shareholders was 20.43 billion yuan ($3.2 billion) and net income was 19.22 billion yuan ($3 billion), showing year-over-year decreases of 74 percent and 75 percent.

Adjusted net income was 44.62 billion yuan ($7 billion), a decrease of 25 percent year-over-year.

Diluted earnings per American depositary share (ADS) were 7.51 yuan ($1.18) and diluted earnings per share were 0.94 yuan (15 cents). Adjusted diluted earnings per ADS was 16.87 yuan ($2.65), a decrease of 23 percent year-over-year and adjusted diluted earnings per share were 2.11 yuan (33 cents), also declining 23 percent year-over-year.

CEO’s Take: “As China continues to advance towards its carbon peak and neutrality goals, we foresee increasing demand for more reliable and sustainable technology infrastructure as digital transformation deepens across industries,” said Daniel Zhang, Alibaba Group chairman and CEO in the company’s earnings call. We aim to leverage Alibaba Cloud product and technology innovations to help our customers find a greater energy efficiency. For example, our data centers decrypted by liquid-cooling technology achieved industry-leading energy efficiency levels with a power usage effectiveness (PUE) of as low as 1.09. (A figure of 1.2 PUE or below is considered ‘very efficient.’) Moreover, our facilities can deliver high performance with lower power consumption leveraging our proprietary product and technologies.”