Performance Summary: Revenue for the 6/30 quarter was RMB 205.55 billion, the same as the previous year. Operating profit fell 19% year on year to 24.943 billion yuan, mainly because domestic e-commerce CMR was affected by the April and May epidemic. Adjusted EBITA fell 18% year over year to $34.419 billion. Net profit fell 53% year over year to 20.098 billion yuan, mainly due to a decline in investment profit and loss calculated by adjusted EBITA and equity method accounting. By the end of June, the company had completed 52% of the $25 billion share repurchase program and held $453.193 billion in cash, equivalents and short-term investments. In July, the company announced that it would apply for a dual primary listing in Hong Kong. It is expected to take effect before the end of 2022, and is expected to be included in the Hong Kong Stock Connect in 2023.
GMV grew negatively year on year, and the short-term recovery process was slow: 1) China's retail revenue fell 2% year on year to 136.977 billion yuan, CMR revenue fell 10% year on year to 72.263 billion yuan, and physical GMV declined in medium units year on year, which was better than market expectations. The decline was mainly due to the impact of the epidemic in April and May on GMV and an increase in return rates due to logistics network disruptions. Consumers with strong purchasing power have achieved a high retention rate: more than 123 million buyers spend more than 10,000 yuan per year; 25 million 88 VIP members spend an average of 57,000 yuan per year. Taote's losses narrowed sharply month-on-month; TaocaiCai entered regions with high population density and considerable purchasing power. In June, GMV increased by more than 200% year on year, and losses narrowed month-on-month. 2) Direct revenue increased 8% year-on-year, mainly due to strong growth in demand for food and FMCG daily necessities, which led to an increase in Hema and Ali's health revenue. 3) International retail revenue fell 3% year on year to 10.524 billion yuan, and order volume fell 4% year on year (Lazada order volume YoY +10%), mainly due to EU tax reform, exchange rate and supply chain disruptions. 4) Local living income increased 5% year on year to 10.632 billion yuan, and order volume fell 5% year on year due to the pandemic. Are you hungry for non-meal delivery orders growing fast, and the economic benefit per unit is positive. 5) Cainiao's revenue increased 5% year over year to 12.142 billion yuan, of which 70% came from external customers. There were no major promotional holidays in the 9/30 quarter, so the short-term e-commerce business recovery process was slow. We still need to pay attention to the recovery trend of monthly social zero data.
Cloud computing YoY +10%, and the share of non-internet businesses continues to rise: cloud business revenue increased 10% year over year to 17.685 billion yuan, mainly from financial services, public services, and telecommunications services. Customer revenue from non-Internet industries accounted for 53%, an increase of more than 5 percentage points over the previous year. The EBITA profit margin was 1%, compared to 2% in the same period last year. Alibaba Cloud's growth rate this quarter lagged behind that of its overseas peers, mainly due to short-term cost reductions and increased efficiency in the Internet industry and increased competition in the domestic cloud computing industry.
The target price is $169.31/HK$166.13. Buying Rating: Short-term domestic consumption is recovering, and the growth rate of cloud business this quarter is not normal. At the same time, cutting costs and slowing down the company's expansion plans will help profit side performance. We expect revenue of $9,117/10,517/1,192.6 billion yuan for the next three years, profit of $991/1176/143.3 billion yuan for the next three years, and a target price of $169.31 /HK$166.13 to maintain our buying rating.
Risks: 1) macroeconomic uncertainty and weak consumption growth; 2) increased competition in the domestic e-commerce and cloud computing industries; 3) emerging businesses are progressing less than expected; 4) regulatory risks related to the platform economy.