Overall performance on the revenue side was under pressure, and the profit side exceeded expectations. At FY4Q2023, the company achieved operating income of 208.2 billion yuan (yoy +2%), slightly lower than our forecast of 212.8 billion yuan (yoy +4%); achieved adjusted net profit of 27.4 billion yuan (yoy +38%), exceeding our expectations of 25.7 billion yuan (yoy +30%), and adjusted net profit margin of 13% (+4 pct); adjusted EBITA was 25.3 billion yuan (yoy +60%), exceeding our expectations of 23.4 billion yuan (yoy +48%), with an adjusted BITEA profit margin of 12% (yoy+ 4pct), the performance on the profit side exceeded expectations.
Business in China: The difference in growth rate between CMR and GMV has narrowed significantly, and investment continues to focus on long-term strategies. At FY4Q2023, the company's China commercial sector achieved revenue of 136.1 billion yuan (yoy -3%), and adjusted EBITA was 38.5 billion yuan (profit margin 28%, yoy+5pct). 1) CMR&GMV: The company achieved CMR revenue of 60.3 billion yuan (yoy -5%) (lower than our expectations). GMV showed a decline in the middle single digits, and the gap between CMR and GMV growth rates narrowed significantly, in line with our judgment in the report released earlier. We believe that the impact of the decline in commission rates due to the FY1Q24 pandemic has been eliminated, and we continue to maintain our judgment that the company's TR will gradually enter a stable period. Furthermore, Taobao Tmall's GMV growth rate in March was corrected year over year, and a recovery trend is beginning to appear. 2) New business: The GMV generated by Taobao and Taote M2C products increased by 26%; 62% of the annual active consumers of Taobao and Taote bought fresh food for the first time on the company's multiple platforms. Losses in the two new businesses continued to narrow. 3) Three-year dimensional formulation strategy investment long-term development: In the future, the company will focus on three aspects: a) content side: increasing media content to enhance consumer engagement; b) product side: focusing on price power; c) local side: cooperating with the near-market retail business to produce high-frequency daily necessities. In April, Taobao conducted a new interface test based on the above focus points. 4) FY1Q24 Expectations: According to data from the Ministry of Transport, the average number of express orders collected per day increased by 44% in April, and the industry showed a recovery trend. Also, consider the company's continued investment around the user and merchant experience. We expect the company's FY1Q24 to achieve a 1% increase in GMV and resume positive growth, a 1% increase in CMR revenue, and a 3% increase in commercial revenue in China.
International commerce: Retail performance has exceeded expectations, and the future will continue to integrate cross-border and local areas. In FY4Q2023, the company's international business sector achieved revenue of 185 billion yuan (yoy +29%), which greatly exceeded our expectations of 162 billion yuan (yoy +13%), adjusted EBITA was -2.3 billion yuan (profit margin -13%, yoy+5pct). The loss situation was well controlled when revenue increased dramatically. International retail platform orders increased 15% year-on-year during the quarter. 1) AliExpress: Choice was launched this quarter to provide users with more cost-effective products and better services, driving a double-digit increase in AliExpress orders this quarter; 2) Lazada: Benefiting from an improved competitive landscape, orders in Southeast Asia achieved double-digit growth, and Lazada's monetization capacity increased due to increased richness of value-added services. 3) FY1Q24 expectations: In the long run, the company's international business will adhere to cross-border and local integration, and at the same time actively focus on new regional market opportunities. In the short term, the company will still benefit from improvements in the overseas e-commerce environment. The company's international business revenue is expected to increase by 23% in FY1Q24, with adjusted EBITA of -2.2 billion
Local life: Income growth has escaped the impact of the pandemic, and losses have increased month-on-month. At FY4Q2023, the company's local lifestyle segment achieved revenue of 125 billion yuan (yoy +20%), and adjusted EBITA was -4.2 billion yuan (profit margin -33%, yoy+18 pct). 1) Arriving home (hungry): Benefiting from improved consumer demand and an increase in active merchants, GMV and orders have increased significantly. Due to a year-on-year increase in average order amount and a year-on-year decline in average order delivery costs, Hungry's UE continued to be positive and improved year-on-year; 2) To the destination (Gaode & Flying Pig): Due to the recovery in offline consumption, Gaode's DAU reached a record high of 150 million dollars in March, and Flying Pig's domestic hotel reservation value increased 70% over the same period in 2019.
3) FY1Q24 Expectations: Offline demand continues to recover, and the revenue levels of the two major sectors of local life will continue to grow. Therefore, we believe the company needs to make corresponding investments. It is estimated that the company's local lifestyle service business revenue will increase by 32% in FY1Q24, and the adjusted EBITA will be -2.9 billion.
Cloud Computing: The AI Big Model Product, Generic Questions, was launched, and prices were reduced to explore long-term customer needs. At FY4Q2023, the company's cloud computing segment achieved revenue of 18.6 billion yuan (yoy -2%), and adjusted EBITA was 390 million yuan (profit margin 2.1%, yoy+0.6 pct). 1) Tongyi Qian Q: Since the product was released, it has received calculation applications from 200,000 enterprise users. In the future, the big language model will be integrated into all applications within the Alibaba ecosystem. 2) Price cuts create demand: Alibaba Cloud cuts prices for some existing core products by up to 50%. Lower prices are expected to further lower the usage threshold for cloud services. In the long run, the demand for superimposed AI for computing power will increase, and the cloud business has sufficient potential for development.
Organizational restructuring: Some core business groups will be listed independently, and market-based competition will create business sector business vitality while enhancing shareholder returns. 1) Cloud: A complete spin-off and listing will be achieved through dividend payments in the next 12 months; 2) Hema: plans to complete the listing in the next 6-12 months; 3) Cainiao: Plans to complete the listing in the next 12-18 months. On the one hand, we believe that various business segments have greater flexibility and independence under the new organizational structure, and that business vitality is expected to be further revitalized under more market-based competition and incentives; on the other hand, the current market does not fully value high-quality businesses that are still within the Alibaba Group, and an independent listing is expected to achieve value revaluation and increase shareholder returns.
FY1Q24 outlook: Revenue is still under pressure, and profit improvement is in a stable range. 1) Revenue: The e-commerce industry as a whole is showing a recovery trend, but considering that overall consumer confidence still needs to be repaired, and there is still potential uncertainty about recovery, it is estimated that FY1Q24 will achieve revenue of 219.2 billion yuan, an increase of 7%. 2) Profit: a) The company's core e-commerce business will continue to invest in user and merchant experiences. The strategic layout has a long time dimension, and is expected to have a certain impact on profits in the short term. At the same time, losses from Taote, Taocaicai, Direct Management and other businesses have entered a steady improvement range. Therefore, it is estimated that FY1Q24 China's commercial adjusted EBITA will be 44.6 billion dollars (yoy +2%), with a profit margin of 31% (yoy+0pct); b) It is expected that the company's international business and local life will need to invest in growth brought about by industry recovery, and the profitability of Cainiao and Cloud Computing will rise steadily. The overall adjusted EBITA for FY1Q24 is estimated to be 36.8 billion dollars (yoy +7%), and the profit margin is 17% (yoy+0pct).
The company's business has benefited from the recovery of domestic e-commerce and the improvement of the overseas business environment. Investment has been maintained for long-term development, and the operating independence of various business sectors has been enhanced to improve efficiency. The adjusted company's revenue forecast for 2023-2025 was 8687/9222/967.7 billion yuan (originally 8733/9397/994.1 billion yuan), and the adjusted EBITA was 1479/1616.6/176.6 billion yuan (originally 1461/1674/189.5 billion yuan). The division valuation calculation calculates the company's market value of 1967.2 billion yuan, corresponding to a value of 103.11 per share, maintaining a “buy” rating.
Risk warning
The impact of the epidemic continues, competition in the industry is intensifying, the independent listing of business groups has fallen short of expectations, and industry supervision has become stricter.