Author | Cangzhitao

Data support | Tougou big data

At 19:30 Beijing time today, BABA (09988.HKBABA.US) released his financial results for the third quarter of fiscal year 2020 (the fourth quarter of 2019 natural year, which is expressed as "Q4 2019" for ease of reading).

Since its second listing on the Hong Kong Stock Exchange on November 26 last year, BABA's share price has risen out of control. If denominated in Hong Kong dollars, it closed at HK $217 on February 13, up 23% from the issue price. In US stocks, BABA's market capitalization reached 601.8 billion US dollars yesterday, surpassing Facebook Inc to become the world's most valuable technology company after Apple Inc, Microsoft Corp, Amazon.Com Inc, and Alphabet Inc-CL C.

Today's financial report has attracted a lot of attention. This is BABA's first financial report since his return to Hong Kong stocks. American investors have been mediocre to BABA's good performance, no matter how bright the results are, the stock price opens high and goes low every time. This time it is different. It is worth looking forward to how the Chinese investors will react to BABA's financial results.

Second, BABA is the first Chinese Internet company to release financial reports since the outbreak of the epidemic. BABA released the financial results on time without delay, which was also a sense of confidence in his own business and a sense of responsibility for the exemplary role of the industry. Although Q4's performance does not reflect the impact of the epidemic, the company's guidelines for Q1 in 2020 will be of concern to all investors.

The data proved that BABA lived up to expectations, and the Q4 financial report exceeded market expectations in an all-round way. Two important pieces of information revealed in the financial report are that Taobao Live is driving the growth of users and GMV as a new shopping scene, and cloud computing revenue has exceeded 10 billion yuan for the first time, with a growth rate of more than 60%.

1

Both revenue and profit exceed market expectations.

To make it easier to read, we all use the natural year as the timeline in the following articles, that is, the fourth quarter of 2019, unless there is a reminder.

BABA's core business consists of four parts: core e-commerce, cloud computing, digital media and entertainment, and innovation and others.

BABA's Q4 revenue in 2019 is 161.4 billion yuan, and the market is expected to be 159.209 billion yuan, an increase of 38% over the same period last year.

Among them, core e-commerce accounts for 88% of revenue, while cloud computing, entertainment and innovation account for 7%, 5% and 1%, respectively.

BABA realized the GAAP net profit of 52.3 billion yuan in 19Q4, and the market consensus is expected to be 30.335 billion yuan. After adjusting the equity incentive fees, the net profit of Q4 BABA Non-GAAP was 46.494 billion yuan, an increase of 56 per cent over the same period last year. Non-GAAP 's profit margin is 29%.

For BABA, a company of this size, 38% revenue growth and 56% Non-GAAP net profit growth can be said to be excellent.

The highlight of this quarter is Taobao Live, where the number of monthly active users watching Taobao Live and the GMV generated by Taobao Live have more than doubled year on year as of December 2019.Tmall's physical goods payment GMV increased by 24% year-on-year, thanks to the strong growth of fast-moving consumer goods and consumer electronics products.

Rookie income rose 67 per cent to 7.5 billion yuan, while revenue from consumer services (including ele.me and word-of-mouth) rose 47 per cent to 7.584 billion yuan, both faster than the previous quarter.

2

The epidemic has become a catalyst for new business.

The performance of Q4 can only represent the past and look forward to the future. what is most worrying is the impact of the January outbreak on BABA.

After years of development, BABA has been a giant enterprise, operating many businesses. Therefore, it is difficult to consider the specific impact of the epidemic on Ali in the short term. On the face of it, BABA's e-commerce and takeout business will be greatly affected, but the epidemic has also become a catalyst for new business. The importance and effectiveness of cloud computing, new retail, big entertainment, nailing and other businesses have become the most objective beneficiaries.

Cloud computing is expected to be the most homeopathic growth business.Aliyun Q4 grew 62% year-on-year to 10.721 billion yuan, mainly driven by public clouds and hybrid clouds. Growth slowed further, but not significantly, at 64 per cent last quarter. The adjusted EBITA loss is 356 million yuan, the loss rate is-3%, and the loss rate is further reduced.

Cloud computing is expected to break out this quarter, the specific reason for me in "the spring of domestic cloud computing?" It is stated in this article that the simple summary is that the epidemic will accelerate the migration of the IT industry to the cloud.

At present, the market share of Ali cloud computing is the first in the country and the third in the world. The current strategy is still to cut prices to attract more users. With reference to foreign head cloud computing companies reaching a profit margin of 25%, this business model has been proved to be profitable. Scale effect is the most important indicator in cloud computing business, and with the increase of enterprise users, it is expected to accelerate the profit schedule of cloud computing.

In the cloud computing business, nailing as an office online or solution has also been developed at a high speed. BABA's mobile office app Nail surpassed Wechat for the first time on Feb. 6.AppleIn both the mobile app store and the MAC computer app store, downloads have jumped to the top of the free list.

In addition to cloud computing, BABA's fresh business has also developed at a high speed. According to QuestMobile data, the average daily DAU of the box horse App during the Spring Festival was 2.95 million, an increase of 127.5% over the same period last year. The average daily DAU ranks first among many fresh e-commerce companies APP, and the growth rate is second on the screen.

According to the relevant data, the scale of the fresh market is close to 5 trillion yuan, but the permeability is very low and has a huge market space. But before this industry has been lukewarm, mainly because of two reasons: first, fresh supply is very difficult, second, the habit of front-end users is difficult to cultivate. This epidemic can be said to have achieved the rapid cultivation of user habits, and many aunts who were not used to using mobile phones before also began to buy vegetables online.

BABA has been investing in the new retail industry in recent years. Gao Xin Retail has 485 hypermarkets, coupled with BABA's Cainiao Logistics, so it has the top domestic strength in distribution capacity and supply chain. With the steady progress of fresh e-commerce industry, it is expected to become one of BABA's revenue growth in the future.

By December 2019, Hema Xiansheng had 197 stores across the country, an increase of 27 compared with the previous month. Fresh e-commerce has always been a very expensive industry, but thanks to BABA's outstanding distribution capacity and supply chain, stores operating throughout the year have become regular EBITDA.

3

What is the impact of anti-epidemic measures on BABA's financial affairs?

"Let there is no difficult business in the world" has always been BABA's mission.During the Spring Festival, businesses were affected to varying degrees by the epidemic. BABA introduced 20 measures to help businesses tide over the difficulties in six major areas, including 16 free subsidies and 6 major subsidies.

These measures include:

• Waive the operating fees of platform merchants, for example, for all Tmall merchants, waive the annual fee for platform services in the first half of 2020

• Provide financial support to provide businesses with low-interest interest-free loans

• Joint Cainiao set up a 1 billion yuan special fund to subsidize the supply chain and logistics

• To provide job opportunities for employees in restaurants and offline retail, Box Horse today announced the launch of a new round of recruitment, opening 30, 000 jobs to the community, including the class of 2020

• Free to help merchants set up digital operations, such as free help offline merchants set up Taobao live streaming, etc.

• Help enterprises to communicate remotely, such as opening Ali cloud resources and nailing free functions.

Among them, waiving the annual fee for platform services has a certain impact on the core e-commerce income. We know that BABA's main profitable business is Tmall Taobao, which income comes from Tmall Taobao customer management (mainly advertising revenue) and Tmall commission. In 2019, Q4 customer management + Tmall commission income was US $84.64 billion, an increase of 21% over the same period last year, including customer management income of 61.235 billion yuan and Tmall commission income of 23.4 billion yuan.

According to the report of CITIC Construction Investment, the annual software service fee for Tmall platform is divided into 30, 000 yuan or 60, 000 yuan, which is refunded by 50% or 100% according to the total GMV.

According to China Renaissance Holdings Ltd. 's calculation, if the average annual fee for businesses is 35000 and Tmall is 250000, this measure will cause BABA to lose 4.375 billion yuan in the first half of the year.

It can be seen that BABA's measures will not only reduce income, but also increase expenses, thus reducing profits. Share prices could face big volatility if next quarter's results do not meet Wall Street expectations.

Even so, BABA is duty-bound to help small businesses tide over the difficulties together and assume social responsibility. In a conference call, Zhang Yong, chairman and CEO of BABA Group, said that so far, BABA has purchased more than 40 million pieces of medical supplies and sent them to Wuhan and other areas affected by the epidemic. Rookie "Green Channel" has delivered a total of 26 million pieces of medical supplies donated from home and abroad to Wuhan and other places.

This is why we chose BABA as one of the top ten core assets in China. From the 2008 financial crisis to the current epidemic, BABA considered social responsibility in addition to the financial report data, tide over the difficulties with small and medium-sized enterprises, and will certainly share the growth space after the recovery of small and medium-sized enterprises.

4

Abundant cash flow is the backing of BABA to resist risks.

Why BABA can stand in the stand-in in difficult times, in addition to BABA business intertwined to form the stability, but also because BABA has steady profits and healthy cash flow.

As a long-term investor, we like enterprises with high anti-risk ability, operating cash flow and free cash flow are good indicators to evaluate the anti-risk ability of an enterprise.

The following picture shows BABA's operating cash flow and Non-GAAP free cash flow in the past few fiscal years. Q4 BABA operating cash flow reached 96.5 billion yuan, Non-GAAP free cash flow reached 78.279 billion yuan.

Stable profits and healthy cash flow ensure that BABA can face it calmly even if he encounters a black swan. At the same time, the ability to self-transfusion allows BABA to have enough capital to invest in emerging technologies and industries, rather than through financing, which makes BABA both growing and safe.

5

Will BABA's long-term logic change in 2020?

According to the latest results, BABA's diluted Non-GAAP over the past 12 months has earned $7.54 a share, compared with the current pre-market share price of 218.88 for BABA PE (TTM) = 29x. For BABA's current revenue and profit growth, this valuation is not expensive.

In the short term, the epidemic may have an impact on BABA's revenue and earnings in the first quarter of 2020, but in the long run, the outbreak is just a black swan in 2020 and does not affect BABA's long-term logic.

BABA's long-term logic is still the core e-commerce basic stability, cloud computing is the driving force for future growth. On the C side of To, Taobao Tmall currently has more information flow than search, which has great monetization potential, but BABA is in no hurry to monetize these flows. The highlights of Taobao Live are also noteworthy. What is easy to ignore in the industry is that live broadcasts such as Douyin and Kuaishou Technology are more eye-catching because of their entertainment, but Taobao live streaming is more commercially valuable and has a more far-reaching impact on the industrial chain. On the To B side, the outbreak has accelerated the growth of cloud computing, nailing, new retail and other businesses.

Another point to watch in 2020 is whether Hong Kong stock BABA can be included in the Hong Kong Stock Connect. After returning to Hong Kong stocks, BABA was obviously loved by Hong Kong funds who are more familiar with the company's business. Recently, it has been reported that BABA will be excluded from the Hong Kong Stock Connect in March, which is reasonable, because companies with "different rights in the same share" also need to be listed for six months and 20 trading days before they can be included in the Hong Kong Stock Connect.

The HKEx looks forward to future negotiations on the inclusion of secondary listed companies with different rights in the Hong Kong Stock Connect. Once the HKEx opens the door for BABA to connect with Hong Kong stocks, it is expected to obtain southward capital in the future and may revalue it.