Alibaba Beats, Becomes One Of The Most Shareholder-Friendly Companies

China Last Night

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Alibaba Earnings Overview

After the Hong Kong close/before the US market open, Alibaba reported March quarter and fiscal year results. The results beat analyst expectations, though they missed revenue slightly in CNY revenue, they beat revenue in US dollars. Revenue was the highest ever, except for Q3 which always has a big jump due to the Singles Day sales event.

Fiscal year revenue was also the highest level ever +2% year over year (YoY). The core-China e-commerce business had a small negative -3% YoY revenue growth though management’s focus on costs led to a strong uptake in the bottom line. Cloud revenue was also weak, while logistics arm Cainiao posted strong revenue growth +18% and international e-commerce revenue growth +29%.

Alibaba is much further along in its planned move to become a holding company of the six major business groups as they announced the Board of Directors for each of the six companies and the formation of a Capital Management Committee focused on “enhancing shareholder value.” The company will spin off the Cloud Intelligence Group via a stock dividend as the unit becomes a publicly listed company in the next twelve months. Cainiao Smart Logistics and grocery chain Freshippo have been approved to “explore an initial public offering” in the next 12 to 18 months for the former and 6 to 12 months for the latter. In the release, the company announced it had bought 21.5mm ADRs for $1.9B, with another $19.4B to spend on buybacks through March 2025.

Revenue grew +2% to RMB 208.2B ($30.316B) versus analyst expectations RMB 209.1B versus YoY comparison of RMB 204B
Adjusted Net Income increased +38% to RMB 27.375B ($3.986B) versus analyst expectations RMB 24.5B versus YoY comparison of RMB 21.4B
Adjusted EPS increased +35% to RMB 10.71 ($1.56) versus RMB 9.44 versus YoY comparison of RMB 7.95
Cash on the balance sheet increased to RMB 560B ($81B) from RMB 446B year over year as free cash flow increased +74% to RMB 171B ($24.9B) from RMB 98.8B

Pro-shareholder language:

“We are taking concrete steps towards unlocking value from our businesses and are pleased to announce that our board has approved a full spin-off of the Cloud Intelligence Group via a stock dividend distribution to shareholders.”

“We have established a capital management committee at the Alibaba board level to undertake a comprehensive capital management plan to enhance shareholder value. Alibaba is committed to improving shareholders’ return through the implementation of a robust capital allocation framework,” said Toby Xu, Chief Financial Officer of Alibaba Group. “We are delighted to share that our board has approved the process to start external financing for Alibaba International Digital Commerce Business Group; exploration of IPO for Cainiao Smart Logistics Group; and execution of IPO for Freshippo.”

Key News

Asian equities were mixed as Taiwan outperformed while Hong Kong, Singapore, and Thailand underperformed.

The US debt ceiling is a factor as investors ponder if the two sides can come to an agreement leading to risk-off, conservative positioning on light volumes as buyers wait to see how things pan out. While Mainland China had a mixed day, Hong Kong sold off following the National Development and Reform Commission’s (NDRC) mid-morning statement that everything in China’s economy is improving. The release appears tone-deaf to yesterday’s underwhelming April economic release, which had raised hopes policymakers would respond with economic support. The NDRC statement dashed those hopes sending stocks down as potential buyers of stimulus news receded while short-pressed their bets.

Hong Kong Main Board’s short turnover accounted for 20% of the total turnover, as only 48 stocks advanced while 453 declined. CNY sold off versus the US dollar to 6.99, with the Asia dollar index off as well. Not helping was tepid April property sales as real estate in Hong Kong was off -4.26% though off only -0.97% in the Mainland. High dividend-paying stocks were hit with profit-taking, exacerbating today’s move. After the market close, the PBOC released a statement speaking to China’s low inflation though it mentioned the economy is improving incrementally and policy tools are available. This should give investors confidence policymakers are aware of the situation and ready to act.

While macro concerns are center stage, microanalysis/bottom-up is improving, as evidenced by JD.com, Baidu, and now Tencent’s Q1 financial results. Remember, Alibaba reports tomorrow morning. We had another “foreign investor freakout” driven by low positioning to China due to geopolitical concerns, which allowed shorts to drive stocks down in the absence of foreign buyers though Mainland Chinese investors bought a very healthy $865 million of Hong Kong stocks today. Mainland China took the same news and yawned in a mixed day on light volumes. Amazing to see the disparity between onshore China and the vast majority of owners, Chinese investors, versus offshore China and Hong Kong-US ADRs, the majority owned by foreign investors. Foreign investors did buy $241 million of Mainland stocks today.

The Hang Seng and Hang Seng Tech were off -2.09% and -2.23% on volume +29.61% from yesterday, which is 85% of the 1-year average. 48 stocks advanced, while 453 declined. Main Board short selling increased +72.75% from yesterday, 103% of the 1-year average, as 20% of turnover was short turnover. Value factors outpaced growth factors as large caps “outperformed” small caps. All sectors were negative, with real estate -4.24%, health care -3.57%, and utilities -2.97%. Household products were the only positive sub-sector, while food, pharma, and consumer durables were the worst. Southbound Stock Connect volumes were light as Mainland investors bought $865 million of Hong Kong stocks, with Tencent a moderate net buy, Kuiashou a small net buy, and Meituan a very small net sell.

Shanghai, Shenzhen, and STAR Board were mixed -0.21%, +0.33%, and +0.37% on volume -10.04% from yesterday, 84% of the 1-year average. 3,128 stocks advanced, while 1,527 stocks declined. Growth factors outperformed value factors as small caps outpaced large caps. Tech was the only positive sector +0.33%, while discretionary -1.4%, financials -1.36%, and healthcare -1.29%. The top sub-sectors were aerospace/military, computer hardware, and internet, while telecom, insurance, and precious metals were the worst. Northbound Stock Connect volumes were moderate/light as foreign investors bought $241 million of Mainland stocks, with Kweichow Moutai a small net sell, Ping An a very small net buy, and Foxconn a very small net sell. CNY fell -0.25% to 6.99 versus the US dollar along with the Asia dollar index. Treasury bonds sold off along with copper while steel gained.

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