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Alibaba Group Announces December Quarter 2021 Results

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Alibaba Group Announces December Quarter 2021 Results

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Alibaba Group Holding Limited recently announced its financial results for the quarter ended December 31, 2021.

“Alibaba delivered steady progress this quarter as we continued to execute our multi-engine growth strategy in a complex and volatile market environment. We achieved positive momentum in key strategic businesses through a disciplined focus on capacity building and value creation to fuel our future growth. Our global annual active consumers grew at a solid pace, reaching 1.28 billion on the strength of a quarterly net increase of 43 million,” said Daniel Zhang, Chairman and Chief Executive Officer of Alibaba Group. “We believe a clear ESG strategy is instrumental to Alibaba’s future, and announced our goal to realize carbon neutrality in our operations by 2030 along with a commitment to an additional 1.5 gigatons of decarbonization in 2035 by working with consumers, customers and partners across our ecosystem.”

“We delivered healthy results this quarter with revenue growth of 10% year-over-year. We have always innovated and invested for the long term throughout Alibaba’s history. As demonstrated by our new segmental disclosure, our continued investments in growth initiatives have seen tangible results,” said Maggie Wu, Chief Financial Officer of Alibaba Group. “With confidence in the company’s prospects today and over the long term, we repurchased approximately 10.1 million of our ADSs for approximately US$1.4 billion this quarter.”

BUSINESS HIGHLIGHTS

In the quarter ended December 31, 2021:

  • Revenue was RMB242,580 million (US$38,066 million), an increase of 10% year-over-year that was primarily driven by the revenue growth of China commerce segment by 7% year-over-year to RMB172,226 million (US$27,026 million), Cloud segment by 20% year-over-year to RMB19,539 million (US$3,066 million), Local consumer services segment by 27% year-over-year to RMB12,141 million (US$1,905 million) and International commerce segment by 18% year-over-year to RMB16,449 million (US$2,581 million).
  • Annual active consumers of the Alibaba Ecosystem across the world reached approximately 1.28 billion for the twelve months ended December 31, 2021, an increase of approximately 43 million from the twelve months ended September 30, 2021. This includes 979 million consumers in China and 301 million consumers overseas, representing a quarterly net increase of over 26 million and 16 million, respectively.
  • Income from operations was RMB7,068 million (US$1,109 million), a decrease of 86% year-over-year, which included a RMB25,141 million (US$3,945 million) impairment of goodwill in relation to Digital media and entertainment segment. Excluding this impairment of goodwill, income from operations would have been RMB32,209 million (US$5,054 million), a decrease of 34% year-over-year. The year-over-year decrease was primarily due to our increased investments in growth initiatives and our increased spending for user growth, as well as our support to merchants. We excluded impairment of goodwill discussed above from our non-GAAP measurements. Adjusted EBITA, a non-GAAP measurement, decreased 27% year-over-year to RMB44,822 million (US$7,034 million).
  • Net income attributable to ordinary shareholders was RMB20,429 million (US$3,206 million)and net income was RMB19,224 million (US$3,017 million), showing year-over-year decreases of 74% and 75%, respectively, primarily due to the impairment of goodwill of RMB25,141 million (US$3,945 million) and the decrease in net gains arising from the changes in fair value of our equity investments, both of which we excluded from our non-GAAP measures. Non-GAAP net income was RMB44,624 million (US$7,002 million), a decrease of 25% year-over-year.
  • Diluted earnings per ADS was RMB7.51 (US$1.18) and diluted earnings per share was RMB0.94 (US$0.15 or HK$1.15). Non-GAAP diluted earnings per ADS was RMB16.87 (US$2.65), a decrease of 23% year-over-year and non-GAAP diluted earnings per share was RMB2.11 (US$0.33 or HK$2.58), a decrease of 23% year-over-year.
  • Net cash provided by operating activities was RMB80,366 million (US$12,611 million). Non-GAAP free cash flow was RMB71,022 million (US$11,145 million), a decrease of 26% year-over-year compared to RMB96,210 million in the same quarter of 2020, mainly due to a decrease in profit as a result of our increased investments in growth initiatives and our increased spending for user growth, as well as our support to merchants.

Reconciliations of GAAP measures to non-GAAP measures presented above are included at the end of this results announcement.

See related article: Texas Pacific Land Corporation Announces Fourth Quarter and Full Year Results

BUSINESS AND STRATEGIC UPDATES

Starting this quarter, we have updated our segment reporting to separately present China commerce, International commerce, Local consumer services, Cainiao, Cloud, Digital media and entertainment, and Innovation initiatives and others. Please see “December Quarter Information by Segments” below for details.

China Commerce

For the twelve months ended December 31, 2021, our China commerce businesses had approximately 882 million annual active consumers, representing a quarterly net increase of about 20 million, primarily driven by additions from Taobao Deals. The percentage of new consumers in less developed areas continues increasing, which reflects our success in broadening our product offerings to meet diverse consumer demand.

For the quarter ended December 31, 2021, online physical goods GMV for Taobao and Tmall, excluding unpaid orders, recorded single-digit year-over-year growth, primarily due to slowing market conditions as well as competition. By categories, year-over-year growth of physical goods GMV for apparel and accessories and consumer electronic categories were slower than overall average growth, while growth in the FMCG and home furnishing categories were faster.

Taobao Deals (淘特) continued to provide consumers with more value-for-money products, which drove rapid consumer growth. For the twelve months ended December 31, 2021, there were 280 million annual active consumers on Taobao Deals, up 39 million from the prior quarter. Taobao Deals has also successfully executed several initiatives to optimize logistics costs and improve delivery experience for consumers. During the quarter, paid orders on Taobao Deals grew strongly at over 100% year-over-year.

For the quarter ended December 31, 2021, Taocaicai, our community marketplaces business, continued to penetrate into less developed areas while generating robust GMV growth of 30% quarter-over-quarter. Importantly, Taocaicai is driving higher penetration into our annual active consumers’ purchases of food, grocery and fresh produce, which enhances their purchase frequency and stickiness on our platforms. At the same time, its unit economics per order continues to improve, benefitting from higher regional order density, and improving gross margin from enhanced supply chain capabilities.

International Commerce

International Retail – expanding consumer base in key strategic regions

In December 2021, our international commerce retail business, mainly including Lazada, AliExpress, Trendyol and Daraz, grew strongly and achieved about 301 million annual active consumers in the twelve months ended December 31, 2021, representing a quarterly net increase of 16 million. During the quarter, combined order growth of these businesses was around 25% year-over-year, driven by robust growth in Lazada of 52% and Trendyol of 49%, which was partially offset by a decrease in orders for AliExpress in Europe due to value-added tax levied on cross-border parcels below €22 in value.

International Wholesale – increasing value-added service offerings to drive international trade

During the quarter, our international commerce wholesale business exhibited robust growth of around 50% year-over-year in value of transactions completed on Alibaba.com, driven by solid export growth of consumer and industrial goods from China to other major developed and developing countries. Alibaba.com facilitates international trade by offering value-added services such as global logistics and trade assurance that have been increasingly adopted by global buyers and sellers. For the quarter ended December 31, 2021, our international commerce wholesale revenue grew strongly by 29% year-over-year. In particular, value-added service revenue grew 43% year-over-year.

Local Consumer Services

For the twelve months ended December 31, 2021, Local consumer services segment had approximately 372 million annual active consumers, representing a solid quarterly net increase of 17 million. For the quarter ended December 31, 2021, Local consumer services recorded order volume growth of 22% year-over-year.

To Home – maintaining healthy on-demand delivery order growth and improving efficiency

Order volume of “To Home” businesses represented by Ele.me and Taoxianda grew steadily, driven by fast growth in the number of merchants and user penetration, with an increasing percentage from non-restaurant orders. During the quarter, Ele.me’s unit economics per order improved year-over-year, driven by our disciplined user acquisitions spending and reduced delivery cost.

To Destination – improving user engagement and usage frequency

Order volume growth of “To Destination” businesses, which include Amap and Fliggy, grew rapidly, primarily driven by the increasing number of transacting Amap users and their usage frequency. Amap app is a popular lifestyle app that allows consumers to discover, connect with and visit local merchants at their destinations. Amap continues to develop content and services that have resulted in higher user engagement and loyalty. During the week-long National Day holiday in China, Amap achieved a record high of over 200 million daily active users.

Cainiao

In the December quarter, revenue from Cainiao, before inter-segment elimination, grew 23% year-over-year to RMB19,600 million (US$3,076 million), primarily driven by the growth of fulfillment solutions and value-added services provided to our China commerce retail businesses as well as the increase in revenue from third-party merchants of our cross-border and international commerce retail businesses. During the quarter, 67% of its total revenue was generated from external customers. Revenue from Cainiao, after inter-segment elimination, grew 15% year-over-year to RMB13,078 million (US$2,052 million).

Cainiao continues to expand its global infrastructure by strengthening its end-to-end logistics capabilities, including eHubs, line-haul, sorting centers and last-mile network. For the quarter ended December 31, 2021, daily average package volume delivered through its global delivery network exceeded 5 million. During the quarter, Cainiao commenced operations of four self-operated sorting centers in Western Europe, making a total of seven self-operated sorting centers in the region. These sorting centers in Europe improve parcel delivery speed and enable global and local merchants to better serve their consumers in key European countries.

In China, Cainiao continues to build its cost-competitive and highly reliable logistics service network to better serve our consumers in rural areas. We have expanded Cainiao Post coverage nationally with an increasing focus in less developed and rural areas, complementing our domestic e-commerce businesses’ geographic expansion strategy. The number of Cainiao Posts in rural areas more than doubled year-over-year as of December 31, 2021.

Cloud

In the December quarter, total revenue from our Cloud business before inter-segment elimination, which includes revenue from services provided to other Alibaba businesses, was RMB26,431 million (US$4,148 million), an increase of 19% compared to RMB22,175 million in the same quarter of 2020. Revenue from our Cloud business, after inter-segment elimination, grew RMB3,312 million year-over-year to RMB19,539 million (US$3,066 million). The solid 20% year-over-year growth reflected robust growth from financial and telecommunication industries, partially offset by the continuing impact of a top cloud customer’s decision to stop using our overseas cloud services for its international business due to non-product related requirements and slowing demand from customers in the Internet industry such as online entertainment and education.

Alibaba Cloud’s revenue is becoming more diversified with revenue contribution from non-Internet industries steadily increasing. Revenue from non-Internet industries accounted for 52% of Alibaba Cloud’s post-inter-segment elimination revenue for the quarter ended December 31, 2021.

Products & Services

  • Data Centers: Alibaba Cloud continues to ramp up its international presence and has added two data centers in the Asia Pacific region, one in South Korea and the other in Thailand. Currently, Alibaba Cloud offers computing services in 25 regions globally, including Malaysia, Singapore, Indonesia, Japan, Germany and Dubai.
  • ACK Anywhere: Alibaba Cloud Container Service for Kubernetes has been upgraded to ACK Anywhere. This latest edition improves the container technology performance, allowing customers to experience low-cost, low-latency and localized public cloud products in all types of data centers.

Technology

Alibaba Cloud’s advantages are its proprietary technology and Alibaba Group’s continued commitment to invest in research and development in new product offerings and industry-specific solutions for our customers and partners. Highlights of our proprietary technologies in the quarter include:

  • IaaS and PaaS: The 2021 Gartner Solution Scorecard for Integrated IaaS+PaaS, published in November 2021, recognized Alibaba Cloud’s combined IaaS and PaaS offerings as the third highest scored solution among all the global vendors evaluated. Out of the nine categories examined, Alibaba Cloud received the highest scores in compute, storage, networking and security (based on required criteria) categories compared with those of other global vendors evaluated according to the same report.
  • Database: Alibaba Cloud was recognized as a Leader in the 2021 Gartner Magic Quadrant for Cloud Database Management Systems (DBMS) for the second consecutive year.

Digital Media and Entertainment

In the December quarter, Youku’s daily average subscribers base increased 14% year-over-year, driven by competitive membership pricing and continued contribution from the 88VIP membership program. Youku continues to improve operational efficiency through disciplined investment in content and production capability, which resulted in narrowing of losses year-over-year during the quarter.

Alibaba Pictures has consistently shown its solid track record in content investment and distribution. Alibaba Pictures participated in the production and distribution of over 70% of China’s major box office movies during the quarter.

ESG Strategy & Updates

On December 17, 2021, we published our inaugural Alibaba Carbon Neutrality Action Report and announced our climate pledge targets and strategy. In 2020, the total greenhouse gas emissions accounted in Scopes 1-31 generated by Alibaba amounted to 9.51 million metric tons of carbon dioxide equivalent. This is the first attempt to baseline our greenhouse gas emissions. We have pursued a scientifically rigorous process, but also fully realize that this is a work in progress, leaving much work to be done, given the complexity of these measurements across our diverse business practices.

Alibaba has put into practice a comprehensive decarbonization strategy. By 2030, we are committed to achieving:

  • Scope 1 and Scope 2 carbon neutrality;
  • a 50% reduction in Scope 3 carbon intensity; and
  • Scope 3 carbon neutrality for Alibaba Cloud.

Our decarbonization result will be measured, verified, and audited by authorized organizations. We have incorporated a three-tier ESG governance framework to oversee, enable and support the achievement of our carbon neutrality targets and broader ESG goals. To achieve these targets, we will implement a technology-led approach including:

  • leveraging technology to drive energy efficiency;
  • progressively upgrading our energy mix with adoption of clean energy; and
  • actively engaging in carbon reduction, removal and offset initiatives.

We believe our potential to drive greenhouse gas emission reduction is far greater than our own Scope 1-3 emissions, especially in engaging millions of merchants and over 1 billion consumers on our digital platform’s ecosystem. In addition to Scopes 1-3, we proposed the concept of “Scope 3+”, which refers to the emissions generated by a wider range or participants in a platform’s ecosystem. In addition to our own operations, we want to empower businesses and incentivize consumers on our platforms to reduce emissions, and we target to achieve a total of 1.5 gigatons of platform decarbonization (Scope 3+) by 2035.

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1 Scope 1, 2 and 3 are defined by Global Greenhouse Gas Protocols. Scope 1 includes direct emissions from owned or controlled sources. Scope 2 includes indirect emissions from purchased electricity, steam, heating, and cooling. Scope 3 includes upstream and downstream emissions of the organization’s activities, such as emissions from purchased products and services, emissions from the use of the products the organization sells, employee commuting, business travel and others.

Source: Business Wire

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