BABA announced his financial results for the third quarter of fiscal year 21 on February 2, 2021 (the first three months to the end of February 202012). Operating income in the quarter totaled 221.08 billion yuan, an increase of nearly 36.93 percent over the same period last year, exceeding market expectations of 2pct.

Among them, Aliyun business achieved adjusted EBITDA profits for the first time this quarter, Taobao Express version of the annual active buyers and MAU have exceeded 100 million. After the announcement of the financial results, BABA's US stocks fell 3.86%, while BABA's recent financial results announced that their share prices all fell on the day.

From the performance point of view, BABA's core e-commerce business performance is sound, the scale of annual active buyers still keeps rising, and has not been significantly diverted by an endless stream of new channels in the industry.

First, performance review: core business steady growth, sinking and stickiness seeking breakthroughs

BABA basic plate is still rock solid.Total revenue during the reporting period was 221.08 billion yuan, an increase of 36.93% over the same period last year, mainly driven by the growth of retail business and cloud computing business in China. Part of the growth in China's retail business comes from the consolidation of Gao Xin Retail (which began in October 2020). Excluding the impact of Gao Xin Retail, revenue rose 27% year-on-year in the quarter.

In terms of net profit, the rising share prices of investment listed companies and the narrowing of emerging businesses contribute to growth.The net profit of BABA belonging to common shareholders in the current quarter was 79.427 billion yuan, an increase of 52% over the same period last year. The core driving factor is the rise in the share prices of listed companies invested in during the reporting period. In addition, the losses of new businesses such as Aliyun and Cainiao are narrowing, and Aliyun even achieved its first adjusted EBITDA correction.

With the growth of user scale, BABA focuses on sinking market breakthroughs.The number of MAU and annual active buyers of Taobao special edition has exceeded 100 million. As an important platform for BABA to cover the sinking e-commerce market, the phased victory of the Taobao special edition largely means that BABA has made a breakthrough in the sinking market. Driven by this, the total number of annual active buyers during the BABA reporting period reached 779 million, a year-on-year growth rate of 9.56 per cent.

In addition, BABA's investment in user stickiness and participation gradually presents.In December 2020, Taobao APP added "subscription" and "browsing" functions to improve the interaction between users and brands, merchants and KOL, so as to improve users' stickiness in App.

The move is also to deal with the impact and threat that short video e-commerce and social e-commerce may bring to Taos e-commerce.During the conference call, BABA management also stressed that it would increase investment and innovation in improving user interaction and stickiness, including Taobao short videos, Taobao live streaming and other content forms. After the revision of Taobao at the end of 2020, the recommended traffic on the home page increased by more than 90% compared with the same period last year.

Overall, BABA's basic market is still solid, whether the size of users or revenue growth are in the fierce competition steady growth. At the same time, in the core e-commerce business, BABA focuses on content, social interaction, and gradually make up for the differences and deficiencies with competitors.

Second, emerging business: cloud computing turnaround for the first time, rookie high growth and loss narrowing

In this earnings call, the investment and innovation of emerging business has become a topic of great concern to executives and questioners.The two previous "big losers", Ali Yun and Cainiao, have improved greatly in this issue. Cloud computing revenue grew by 50% in the current period compared with the same period last year, driven by revenue growth in the Internet, retail industry and public sector. In addition, Aliyun turned losses into profits for the first time in the adjusted EBITDA caliber, which is an important breakthrough for cloud business.

To a large extent, the turnaround of cloud business reflects the breakthrough of business commercialization.Cloud computing is BABA's future growth potential business, which mainly serves e-commerce, finance and other core business internally, and the commercialization process is gradually realized. At present, Aliyun is a domestic absolute head player in the field of cloud computing.

According to Gartner's November 2020 report, Aliyun is the only Chinese company among the world's largest cloud service providers to enter the "Leader" quadrant in the ranking of Gartner global database magic quadrant data management systems. And the domestic cloud computing business is still in the early stage of development, it is expected that the future growth potential is huge.

The development of cross-border e-commerce has also greatly promoted the growth of Cainiao business.During the reporting period, Cainiao's business income reached 11.36 billion yuan, a year-on-year growth rate of 51%. In terms of operating benefits, Cainiao business achieved positive operating cash flow for the first time in this reporting period.

In the area of local life, BABA continues to expand based on the ele.me platform, with the average number of paid members growing by about 30 per cent year-on-year in December.By the end of the reporting period, ele.me registered merchants grew by more than 30%, of which the number of non-catering registered merchants increased by more than 80% year-on-year, and the overall business income of local life increased by 10% in this quarter.

In the community group purchase, Taobao tests the vegetable purchase business on some areas and some users.If the follow-up promotion is carried out, it may become an important breakthrough to improve the frequency and stickiness of users. In the development mode of community group buying, BABA management explicitly mentioned in the conference call that it would not "spend money to expand", but to improve the user experience model for development.

Under the premise that the basic market of core e-commerce is stable, businesses such as Aliyun and Cainiao contain explosive potential. Ant Group, which had previously faced regulatory changes, was reported to have reached an agreement with regulators on February 3.

Third, the telephone will discuss the key points.

On the night of the release of the financial report, BABA's management held a telephone communication meeting, and Fu Tu Research Jun picked out the key points for everyone here:

Q: in view of the changes in the sales channels and regulatory environment that have been opened by short video platforms and Mini Program, how do you view the retention rate of merchants? What is the company's operating strategy?

The essence of short video e-commerce and live e-commerce is a traffic-based usage mode. As long as there are users, users stay, with the help of payment and logistics means, e-commerce can be carried out. It has become the norm for merchants to operate on multiple platforms and websites. Even if some merchants have exclusive cooperation with BABA, they still have some goods sold through other channels or other platforms.

BABA focuses on consumer user experience and provides it with rich, quality and guaranteed consumer experience. Even if there is the possibility of multi-platform operation, BABA is still the main position of business operation.

From the business point of view, the retention rate, activity, concentration not only did not decline, but also increased. Because e-commerce operation is becoming more and more important to its merchants, BABA retail platform online operation and online and offline integrated operation of the main position. Many platforms only promote and operate e-commerce business through activities, but BABA provides a lot of technical support operating tools to improve its overall efficiency.

Q: what are the prospects for capital expenditure in the next few years?

The amount of capital expenditure in the reporting period is 5.8 billion yuan, of which 4.9 billion yuan is mainly IT and technology-related expenditure, accounting for only a single digit of the income percentage in the reporting period, which is not high compared with international comparable companies. The company's investment in technology, research and development, including Dharma parlour will be strengthened in the future, and the absolute value of capital expenditure and the proportion of income are expected to increase.

Q: what is the impact of China's city closure on BABA?

At present, the company does not see a significant impact on consumption or business. But last year's Spring Festival was at the end of January, this year's Spring Festival is in mid-February, there is a time gap. The implementation of quarantine and blockade measures in some cities will pose challenges to logistics, but as the government encourages people to celebrate the Spring Festival in place, the capacity of the last kilometer is guaranteed.

Q: what is BABA's strategy for investment in innovative business, especially in intelligent transportation and self-driving cars?

In terms of intelligent transportation, Aliyun has been working on it, and there are also intelligent transportation solutions, which will be deployed in different cities and regions at present and will be deployed more widely in the future.

In terms of self-driving cars, Dharma has had a special team for many years, mainly used in logistics. Deploy end-to-end distribution of related technical support on some campuses and residential areas, such as from post station to home or to dormitory. It is believed that there will be more extensive application scenarios in the future, and we will continue to increase investment in this area.

Q: what is the intensity and return of reinvestment in Taobao special edition, Taobao live streaming, Taobao shopping and other businesses?

BABA attaches importance to investing in the future and always looks at these opportunities from an ecosystem perspective for the seed business. In order to maintain our leading position, we need to constantly launch new business and innovation. Generally speaking, the company will not only focus on EBITA in its core business areas, but is confident that it will continue to invest more.

The special edition of Taobao is growing very fast, with annual active buyers exceeding 100 million. The development of the special version of Taobao can help the company better reach the sinking market, such as low-line cities, rural areas, etc.; at the same time, it can also give full play to the company's power in the supply chain, such as 1688, and the company has a strong supply capacity in cost-effective goods, which can meet the needs of people with low consumption power.

Investment in Taobao Live has been going on for some time and has begun to take shape. There are hundreds of thousands of live broadcasts every day, and there are also many stores broadcasting in addition to KOL. Live streaming has become an important marketing tool, highly integrated with the company's overall retail platform, and is a new form of new retail.

Shopping on Taobao is a new and unique model being developed. Companies drive their growth based on value propositions rather than subsidies, emphasizing the sustainability of the business. Taobao shopping business is highly integrated with other businesses, the company in Taobao APP to add a new entrance, so far has achieved very good results.

Q: how do you view the competitive pattern of the cloud computing market in the next few years? What is the company's strategy in cloud computing? Profit margin trend?

BABA has great advantages in several aspects:

① scalability.The company has a huge e-commerce and financial logistics business, which will first meet the needs of its own cloud services, create highly scalable cloud services, and then provide them to third-party customers.

② can provide a lot of data capability applications.Many Chinese customers migrate to the cloud mainly in order to make better use of data, so the ability to use data is the key. BABA is in a very superior position in this respect.

Advantages of ③ technology.Over the years, the company has been investing heavily in the most advanced technology, recruiting the best engineers and scientists through Dharma, leading the competition in many key product performance, including databases, and constantly winning customer praise and feedback. The technology company invests a lot in IaaS and PaaS, and the SaaS field cooperates with partners in different industries. The company strives to build a cloud computing ecosystem and is optimistic about the future development potential of cloud computing.

Q: will the growth rate of EBITA slow down in the future due to investment?

The company's existing business model has been generating profits and achieving healthy growth. Companies will pay more attention to reinvestment and new business growth than profit growth. When the company sees the opportunity of great market potential, clear growth path and in line with the company's strategy, it will firmly reinvest.

Profit margin has not been the company's primary concern; but with regard to profit growth, BABA still has a good foundation, Taobao, Tmall and other core businesses are still carrying good profit growth.

Q: which newly invested businesses have greater potential markets and synergies? Is there an opportunity for cross-selling?

The company is not only constantly incubating some new business in its core business, but also in other areas. The company will identify customer value and continue to invest in businesses with a good ROI, as well as earlier businesses, such as those that bring different value in core business or other areas.

Q: which new businesses are losing money narrowing?

Some businesses that used to lose a lot of money are narrowing across the board, and some have begun to level off and turn a profit. Losses, such as ele.me, big entertainment, new retail Lazada, and even relatively small import and export businesses, are all narrowing. At the same time, cloud computing and rookies used to lose a lot of money, but now they have tied or gradually leveled off.