Event: The company announced results for January-March 2024. From January to January 2024, the company achieved operating income of 211.9 billion yuan (yoy +7%), net profit of 919 million yuan, and adjusted net profit of 24.418 billion yuan, a year-on-year decrease of 11%.
Comment:
Focusing on strategic priority businesses, domestic e-commerce GMV achieved double-digit growth. With 2024Q1, the company achieved revenue of 211.9 billion yuan, an increase of 7% over the previous year, according to business composition:
1) China's commercial division revenue was 93.216 billion yuan, an increase of 4% over the previous year. Among them, customer management revenue was 63.574 billion yuan, up 5% year on year, mainly due to double digit growth in online GMV (excluding unpaid orders), partially offset by a decline in overall conversion rates; direct management and other business revenue of 24.690 billion yuan, down 2% year on year; China's wholesale business revenue was 4.952 billion yuan, up 20% year on year, mainly due to increased value-added service revenue from paid members.
2) The revenue of the International Business Division was 27.448 billion yuan, an increase of 45% over the previous year. Among them, the international retail business was 22.278 billion yuan, up 56% year on year. The increase was due to strong cross-border business performance such as AliExpress Choice and Tradeyol; international wholesale business was 5.170 billion yuan, up 11% year on year, mainly due to increased revenue from value-added services related to cross-border business.
3) Local lifestyle service revenue was 14.628 billion yuan, up 19% year on year, mainly due to strong year-on-year increase in hungry order volume brought about by increased transaction users and purchase frequency, as well as rapid growth in Gaode's business brought about by major travel scenarios and 'to destination' services.
4) Cainiao's revenue was 24.557 billion yuan, an increase of 30% over the previous year; mainly driven by the increase in revenue from cross-border logistics fulfillment services supporting AliExpress.
5) Cloud business revenue was 25.595 billion yuan, an increase of 3% over the previous year; mainly because the company focused on high-quality revenue from core public cloud products and AI-related products during the quarter, while actively reducing project-based contract revenue with low profit margins.
6) Dawen Entertainment Group's revenue was 4.945 billion yuan, down 1% year on year; mainly affected by the slight decline in Youku's revenue, the increase in Alibaba Pictures movie business revenue, and the rapid increase in revenue from the online ticketing platform Damai for performance events.
7) Revenue from other businesses was $51,458 billion, down 3% year-on-year, mainly due to the decline in revenue from Gaoxin Retail and Ali Health, which was partly offset by Hema's revenue growth.
Currently, the company's strong investment in strategic priority businesses has begun to bear fruit, and both Taotian and GMV in international e-commerce businesses have achieved double-digit year-on-year growth. Driven by cost advantages brought about by cost-effective infrastructure and advanced technology, AI product customers and related cloud computing revenue are also growing at an accelerated pace. We believe that as the company continues to implement its strategic focus, the market competitiveness of e-commerce and cloud computing businesses will stabilize, moderate and improve.
Sales and marketing expense ratios have been rising steadily, and adjusted net profit has declined. 2024Q1, the company's operating cost was 148.098 billion yuan, the gross profit margin was 33%, the same as the previous year; product development expenses were 14.085 billion yuan, the corresponding cost rate was 6%, down 1 percentage point from the previous year; sales and marketing expenses were 28.826 billion yuan, the corresponding expense ratio was 13%, an increase of 1 percentage point over the previous year; the net profit was 919 million yuan, excluding equity incentive expenses, revaluation and disposal of investment income (loss), impairment loss of investment, and several other items. Adjusted net profit of 24.418 billion yuan, a year-on-year decrease of 11%, mainly due to net losses due to changes in market value of listed companies' equity investments held by the company, compared with net income for the same period last year.
The “customer first” strategy creates a unique competitive advantage and leads the global restoration of growth momentum. The company achieved double-digit year-on-year growth in online GMV and order volume during the quarter. The core is that the company continues to focus on improving the overall e-commerce shopping experience of users to meet multi-level consumer demand. Specifically, the company is not only committed to improving product efficiency, but also attaches particular importance to the overall richness of the market:
On the basis of maintaining the richness of the entire Taobao market, we provide higher product efficiency for some core products with high sales rates. Through continuous improvement in these two dimensions, the company was able to build a “universal Taobao”, thus establishing a unique competitive advantage in the domestic e-commerce market. We believe that with the continuous and effective implementation of the company's strategy, Taotian Group's business will attract more customers in the future, and the frequency of purchases and consumer retention rates will further increase.
Profit prediction and rating: The company actively adjusts to reshape the competitiveness of e-commerce, cloud computing and other business sectors. We expect net profit attributable to the Group for the 2025-2027 fiscal year to be 1405 billion yuan, 151.5 billion yuan, and 164.1 billion yuan respectively. The corresponding PE is 10X, 9.3X, and 8.6X, respectively. Maintain a “Highly Recommended” rating.
Risk warning: (1) Domestic e-commerce competition is intensifying; (2) demand for AI cloud computing-related products is poor.