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Alibaba Still Sparks 37% Growth Despite Antitrust Scrutiny

Amid heavy antitrust scrutiny, Alibaba Group reported a strong third quarter with revenue growth of 37 percent year over year to 221.1 billion yuan ($33.9 billion), beating Bloomberg analyst estimates of a 33 percent increase and showing the continued strength of its retail and logistics operations.

Alibaba’s core commerce business, which includes the company’s Taobao, Tmall and Tmall Global marketplaces, international businesses such as Lazada and AliExpress, its grocery stores, on-demand delivery platform Ele.me and its Cainiao logistics network, accounted for 89 percent of revenue, at 195.54 billion yuan ($30.0 billion) for the fiscal third quarter, up 38 percent year over year.

In a Nutshell: The e-commerce giant focused on the success of its annual 11.11 Global Shopping Festival, casually known to many as Singles Day, highlighting that the 250,000 brands and 5 million merchants that participated generated 498.2 billion yuan ($74.1 billion) in gross merchandise value (GMV) a 26 percent increase from last year. At its peak, the Alibaba Cloud service processed 583,000 orders per second.

During the 11-day event, 470 brands achieved more than 100 million ($15.2 million) in sales. Additionally, there were approximately 30 million new product launches, with GMV for new products growing by 35 percent year over year. In China, Cainiao and its partners processed over 2.3 billion orders during the festival while continuing to improve delivery time to enhance consumer experience.

The full quarter saw growth for its retail marketplaces, with annual active consumers reaching 779 million by the end of 2020, an increase of 22 million over the prior quarter. Mobile monthly active users reached 902 million, an increase of 21 million over September 2020.

Tmall’s online physical goods GMV, excluding unpaid orders, grew 19 percent year-over-year during the December quarter, supported primarily by rapid growth of the fast-moving consumer goods (FMCG) and home furnishing categories, while growth of the consumer electronics category accelerated year over year.

The year-over-year growth rate of Taobao’s online physical goods GMV, excluding unpaid orders, was “robust” for the quarter, primarily driven by solid growth of the apparel and accessories, home furnishing and consumer electronics categories. Alibaba did not break out full growth numbers for Taobao, but noted that its Taobao Live livestreaming platform generated 400 billion yuan ($62 billion) throughout the 2020 calendar year.

And Tmall Global, Alibaba’s marketplace for international brands and merchants entering the China market online to build brand awareness, saw its number of brands and merchants grow over 60 percent year over year. Purchases of products warehoused and shipped from overseas by Tmall Global saw “triple-digit” year-over-year GMV growth.

The company attributed the jump to its innovation in cross-border logistics solutions, since brands that do not have a physical presence in China can now store inventory in Alibaba-operated warehouses located in their home markets. Tmall Global facilitates exports to China when orders are placed.

On the logistics front, Cainiao deployed more than 200 international chartered cargo flights in December for its AliExpress business, which resulted in improved fulfillment efficiency for AliExpress orders and a reduction of average delivery time by 3.5 days on orders from China to international markets.

Ele.me, Alibaba’s last mile delivery service, has seen the number of registered merchants grow 30 percent year over year.

The success comes at a strenuous time for Alibaba, which is facing escalating pressure from Chinese regulators over its business practices.

In December, China’s State Administration for Market Regulation (SAMR) opened an investigation into Alibaba over monopolistic practices, citing that its main issue was a practice that forces sellers to choose one of two dominant e-commerce platforms, rather than being able to work with both.

Alibaba Group stated it is fully cooperating with the SAMR, and has established a task force with leaders from its relevant business units to conduct internal reviews.

Alibaba founder Jack Ma, whose negative comments towards regulators was seen as a factor behind their canceled IPO of Alibaba’s financial technology affiliate Ant Group, hadn’t been seen in public since making the criticisms in late October. He reappeared in a short video in January as part of a philanthropic event published by Chinese state media.

Ma was not mentioned in the earnings release, but the company provided an update on Ant Group, saying it was in the process of developing its “rectification plan,” which will need to go through “relevant regulatory procedures.” Meanwhile, prominent Chinese financial news outlet Shanghai Securities News declined to include Ma on a list of influential tech personalities, further snubbing the business icon.

Alibaba says Ant Group’s business prospects and IPO plans are subject to substantial uncertainties.

In the December quarter, net cash provided by operating activities was 103.2 billion ($15.8 billion), an increase of 7 percent compared to last year. Free cash flow increased by 23 percent to 96.2 billion ($14.7 billion) in the period.

Net Sales: For the quarter, total revenue was 221.1 billion yuan ($33.9 billion), an increase of 37 percent year-over-year over the 161.5 billion yuan ($25 billion) generated last year.

The Cainiao Network saw year-over-year revenue growth of 51 percent to 11.4 billion yuan ($1.7 billion), primarily due to the increase in volume of orders fulfilled. Cainiao had positive operating cash flow during the quarter.

Outside of Alibaba’s core operations, cloud computing was profitable for Alibaba for the first time, with the segment’s revenue jumping 50 percent to 16.1 billion yuan ($2.5 million).

Net Earnings: Net income attributable to ordinary shareholders was 79.4 billion yuan ($12.2 billion), and overall net income was 78 billion yuan ($11.95 billion).

Adjusted EBITDA increased 22 percent year over year to 68.4 billion yuan (10.5 billion). Diluted earnings sits at $4.42 per American depositary share (ADS), while adjusted diluted earnings per ADS was $3.38, an increase of 21 percent year over year.

CEO’s Take: “China was the only major economy to achieve positive GDP growth last year. Thanks to the rapid recovery of China’s economy, Alibaba had another very healthy quarter,” said Daniel Zhang, chairman and CEO of Alibaba Group. “We achieved another successful 11.11 Global Shopping Festival by stimulating consumption, satisfying consumer demands and supporting the business recovery of merchants in response to the impact of the pandemic. Our cloud computing business continues to expand market leadership and show strong growth, reflecting the massive potential of China’s nascent cloud computing market as well as our years of investment in technology. Looking ahead, we are confident that we will continue to create value for our customers, lead with innovation and make our contributions to society.”

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