China’s tech giant Alibaba Group (NYSE: BABA and HKEX: 9988) today announced its long-waiting financial results for the quarter ended Dec. 31, 2020.
“China was the only major economy to achieve positive GDP growth last year. Thanks to the rapid recovery of China’s economy, Alibaba had another very healthy quarter,” said Daniel Zhang, Chairman and CEO of Alibaba Group. “We achieved another successful 11.11 Global Shopping Festival by stimulating consumption, satisfying consumer demands, and supporting the business recovery of merchants in response to the pandemic. Our cloud computing business continues to expand market leadership and shows strong growth, reflecting the massive potential of China’s nascent cloud computing market. Looking ahead, we are confident that we will continue to create value for our customers, lead with innovation and make our contributions to society.”
Alibaba Group’s Chief Financial Officer Maggie Wu also commented on the firm’s thriving growth, saying “We delivered another solid quarter, with revenue growth of 37% year-over-year and adjusted EBITDA up 22% year-over-year, while our strong free cash flow enabled us to further invest in strategic areas.”
In the quarter ended December 31, 2020:
- Revenue was 221.084 million yuan ($33.883 million), an increase of 37% year-over-year.
- Annual active consumers on our China retail marketplaces reached 779 million for the twelve months period ended Dec. 31, 2020, an increase of 22 million from the twelve months period ended Sept. 30, 2020.
- Mobile MAUs on our China retail marketplaces reached 902 million in December 2020, an increase of 21 million over September 2020.
- Income from operations was 49.002 million yuan ($7.51 million), an increase of 24% year- over-year. Adjusted EBITDA, a non-GAAP measurement, increased 22% year-over-year to 68.38 million yuan ($10.48 million). Adjusted EBITA, a non-GAAP measurement, increased 21% year-over-year to 61.253 million yuan ($9.387 million).
- Net income attributable to ordinary shareholders was 79.427 million yuan ($12.173 million), and net incomewas 77.977 million yuan ($11.95 million). Non-GAAP net income was 59.207 million yuan ($9.074 million), an increase of 27% year-over-year.
- Diluted earnings per ADS was 28.85 yuan ($4.42) and non-GAAP diluted earnings per ADS was 22.03 yuan ($3.38), an increase of 21% year-over-year. Diluted earnings per share was 3.61 yuan ($0.55 or HK$4.29) and non-GAAP diluted earnings per share was 2.75 yuan (US$0.42 or HK$3.27), an increase of 21% year-over-year.
- Net cash provided by operating activities was 103.208 million yuan ($15.817 million) and non- GAAP free cash flow was 96.210 million yuan ($14.745 million).
Reconciliations of GAAP measures to non-GAAP measures presented above are included at the end of this results announcement.
BUSINESS AND STRATEGIC UPDATES
China Retail Marketplaces – comprehensive product supply and engaging user experience drive consumer growth and higher purchase frequency
In December 2020, our China retail marketplaces had 902 million mobile MAUs. Annual active consumers on our China retail marketplaces was 779 million for the twelve months ended Dec. 31, 2020, representing a quarterly net increase of 22 million. We continue to grow consumer mindshare and wallet share among our users, as reflected in higher purchase frequency from all city tiers.
We continued to increase penetration in less developed areas, reflecting our success in broadening product offering to meet diverse demand. One of the key drivers of our acquisition of new users and consumers in less developed areas is Taobao Deals. During the quarter, Taobao Deals achieved rapid user growth by continuing to expand its value-for-money product supply and focusing on user acquisition initiatives. Annual active consumers of Taobao Deals reached over 100 million for the twelve months period ended Dec. 31, 2020 and mobile MAUs of Taobao Deals also reached over 100 million in December 2020.
Tmall online physical goods GMV, excluding unpaid orders, grew 19% year-over-year during the December 2020 quarter, supported primarily by rapid growth of the fast-moving consumer goods (FMCG) and home furnishing categories, while growth of the consumer electronics category accelerated year-over-year. The year-over-year growth rate of Taobao online physical goods GMV, excluding unpaid orders, was robust for the December 2020 quarter, primarily driven by solid growth of the apparel and accessories, home furnishing and consumer electronics categories.
We celebrated the twelfth annual 11.11 Global Shopping Festival in the quarter, featuring a number of key changes in order to better serve brands and enhance consumer experience. We extended what originally was a one-day festival occurring on Nov. 11 to 11 days, running from Nov. 1 through Nov. 11, 2020. This change created greater opportunities for merchants and brands to increase sales and build engagement and relationships with their customers. The extended festival also enhanced the overall shopping experience of consumers by reducing pressure on logistics demand and ensuring timely order delivery. The new approach yielded strong results, attracting a total of over 250,000 brands and 5 million merchants and generating 498.2 billion yuan ($74.1 billion) in GMV, excluding unpaid orders, during the 11-day campaign, an increase of 26% compared to the same timeframe in 2019. Over 470 brands achieved more than 100 million yuan in sales, showcasing the virtuous cycle effects of digital transformation across our ecosystem. The shopping festival was also an opportunity for brands to launch new products and build brand awareness. During the festival this year, there were approximately 30 million new product launches and GMV, excluding unpaid orders, for new products grew strongly by 35% year-over-year.
Tmall Global is the premier platform through which international brands and merchants enter the China market online and build brand awareness. The number of brands and merchants on the Tmall Global platform as of Dec. 31, 2020 grew over 60% year-over-year. In order to better connect international brands with Chinese consumers, Tmall Global continued to innovate in its cross-border logistics solutions. Brands that do not have a physical presence in China can now store inventory in our warehouses located in their home markets, and Tmall Global facilitates export to China when orders are placed. This service leverages the capabilities and economies of scale of Alibaba’s logistics infrastructure to enable brands to quickly enter the China market while reducing sales uncertainty and controlling costs. Purchases of products warehoused and shipped from overseas by Tmall Global grew rapidly, achieving triple-digit year-over-year growth in GMV, excluding unpaid orders, during the December quarter.
During the December quarter, we introduced the Follow (Dingyue) and Entertain (guangguang) features on the front- page of the Taobao app, which further improved user engagement with brands, merchants, key opinion leaders (KOLs), vloggers and content creators. On the Follow landing page, consumers can view new products and promotions offered by the stores they follow or in which they have memberships. This feature is an effective method to enhance consumer loyalty with quality merchants and brands. By browsing the Entertain channel, consumers can learn about the latest consumption and lifestyle trends as well as follow their favorite KOLs, vloggers and content creators. During the quarter, page views enabled through Taobao front page recommendations grew strongly by over 90% year-over-year.
Taobao Live is an indispensable branding, marketing and distribution tool that allows consumers to directly interact with brands, merchants and KOLs through livestreaming sessions. Our own businesses, such as Juhuasuan, Ele.me and Fliggy, are also increasingly leveraging Taobao Live to attract and engage with consumers. Taobao Live generated over 400 billion yuan in GMV for the twelve months ended Dec. 31, 2020.
New Retail – gaining market share in the grocery category using multi-banner and multi-format strategy
In October 2020, we completed our acquisition of a controlling stake in Sun Art Retail Group Limited (“Sun Art”), a leading hypermarket operator in China, and started consolidating Sun Art’s results in our financial statements. The increased investment in Sun Art will allow us to digitalize its offline traffic, synchronize online and offline channel inventory, broaden supply chain network and increase online purchases. In the quarter ended Dec. 31, 2020, online purchases, a majority of which was driven by Alibaba’s digital technology, represented 24% of Sun Art’s sales of goods.
Our self-operated grocery retail chain Freshippo (known as “Hema” in Chinese) achieved healthy double- digit same-store sales growth during the quarter as we continued to optimize its product supply and improve customer experience. As of Dec. 31, 2020, we self-operated 246 Freshippo stores in China. Freshippo will continue to adopt a multi-format and multi-banner expansion strategy by developing new shopping formats and scenarios for consumption of food and beverage and general merchandise. During the quarter, Freshippo opened its first “X Membership” warehouse store in Shanghai, which features high-quality products at competitive prices that can be purchased only by store members.
Local Consumer Services – fast and high-quality growth of merchants and consumers
Demand for digitalization in the restaurant and service industry remains strong after the impact of the COVID-19 pandemic in China. Ele.me has continued to capture this market opportunity, attracting high- quality merchants by providing digital technology solutions and other value-added services. The number of registered merchants grew over 30% year-over-year as of Dec. 31, 2020.
Ele.me’s average daily number of paying members in the December quarter grew about 30% year-over-year given the successful upgrade of our membership program and continued onboarding of high-quality merchants. As part of our New Retail strategy, Ele.me continues to expand its on-demand delivery services to cover a wider range of products in categories such as fresh produce and grocery. As of Dec. 31, 2020, the number of non-restaurant registered merchants enabled by Ele.me increased by over 80% year- over-year.
Cainiao Network – improving efficiency across the Alibaba ecosystem and the logistics industry in China and internationally
In the December quarter, Cainiao Network revenue grew 51% year-over-year to 11.36 million yuan ($1.741 million), primarily due to the increase in volume of orders fulfilled from our fast growing cross- border and international commerce retail businesses. Cainiao had positive operating cash flow during the quarter.
Cainiao Network continued to expand both its domestic services and global smart logistics infrastructure by deepening integration with logistics partners as well as offering more products and services. In China, Cainiao and its partners processed over 2.3 billion orders during the 11.11 Global Shopping Festival while continuing to improve delivery time to enhance consumer experience. Internationally, Cainiao and its partners continued to invest in smart logistics infrastructure to serve our global merchants and to help alleviate logistics capacity constraints caused by the COVID-19 pandemic. In December 2020, Cainiao deployed more than 200 international chartered cargo flights for our AliExpress business, which resulted in improved fulfilment efficiency for AliExpress orders and a reduction of average delivery time by 3.5 days for order deliveries from China to international markets.
International – consistently strong growth in Southeast Asia and growth recovery of AliExpress
Lazada – Our Southeast Asian e-commerce platform Lazada continued to achieve robust growth in both buyers and sellers, benefiting from acceleration of digitalization across industries in Southeast Asia. Lazada recorded another quarter of triple-digit year-over-year order growth despite new waves of the COVID-19 pandemic in many markets where it operates.
AliExpress – Despite logistics disruptions caused by the COVID-19 pandemic in many markets where it operates, AliExpress, in partnership with Cainiao, continued to invest and upgrade its global logistics infrastructure to enhance its cross-border delivery capabilities and efficiency. These investments have supported an ongoing growth recovery since the trough in the March 2020 quarter. Excluding the Russia joint venture business, growth in GMV, excluding unpaid orders, has recovered to a pre-COVID pandemic level in the December quarter.
Alibaba Cloud empowers the digital transformation of enterprises by providing comprehensive technology solutions and services in the cloud for a wide range of industries. In the December quarter, cloud computing revenue grew 50% year-over-year to 16.115 million yuan ($2.47 million), primarily driven by robust growth in revenue from customers in the Internet and retail industries and the public sector. For the first time, Alibaba Cloud achieved positive adjusted EBITA during the quarter due to the realization of economies of scale.
During the 11.11 Global Shopping Festival, Alibaba Cloud provided a highly scalable, reliable and secure public cloud infrastructure, which at its peak processed 583,000 orders per second. Since we migrated our e-commerce businesses onto the public cloud a year ago, these businesses are now able to seamlessly create, upgrade and deploy on a cloud native approach; and this capability was especially important during the festival, helping us to improve operating efficiency and ensure business continuity.
Alibaba Cloud continues to invest in research and development of leading cloud technologies to help our customers undertake digital transformation and enable the growth of their businesses. Our proprietary technologies have consistently won recognition from leading research and advisory organizations such as Gartner and Forrester. For example, according to Gartner’s November 2020 report, among the large-scale global cloud providers, Alibaba Cloud is the only Chinese company with the Leader ranking for database management system under Gartner’s Magic Quadrant measurement.
Digital Media and Entertainment
Youku maintained its strong focus on providing a superior user experience and blockbuster content in a wide range of genres. During the quarter, Youku’s average daily subscriber base increased around 30% year-over-year, driven by the appeal of its original content and continued contribution from the 88VIP membership program.
Alibaba Pictures continued its solid track record in content investment and distribution. For example, Alibaba Pictures invested in and distributed the top three grossing films during the three-day New Year holiday in China, which accounted for over 80% of China box office sales during the period according to Beacon Box Office data. Alibaba Pictures’ popular original dramas, such as Professional Single, also contributed to Youku’s strong subscription growth during the quarter. In addition, Alibaba Pictures enhanced the production capabilities of popular original dramas that are exclusively featured on Youku and increased IP commercialization by content owners on our online marketplaces.
We continued to improve the operational efficiency of our digital media and entertainment businesses through disciplined investment in content and production capability. During the quarter, adjusted EBITA loss for the digital media and entertainment segment narrowed year-over-year.
Cash Flow from Operating Activities and Free Cash Flow
In the December 2020 quarter, net cash provided by operating activities was 103.208 million yuan ($15.817 million), an increase of 7% compared to 96.505 million yuan in the same quarter of 2019. Free cash flow, a non-GAAP measurement of liquidity, increased by 23% to 96.21 million yuan ($14.745 million), from 78.279 million yuan in the same quarter of 2019, mainly due to our robust profit growth. A reconciliation of net cash provided by operating activities to free cash flow is included at the end of this results announcement.
On Dec. 28, 2020, we announced that our board of directors authorized an upsize of our share repurchase program from $6 billion to US$10 billion, for a two-year period through the end of 2022. During the quarter ended Dec. 31, 2020, we repurchased approximately 540,000 of our ADSs (or approximately 4.3 million of our ordinary shares) for approximately $118 million under the share repurchase program. As of Dec. 31, 2020, we had approximately 21.7 billion ordinary shares (equivalent to approximately 2.71 billion ADSs) issued and outstanding.
On Dec. 24, 2020, Alibaba Group received a notice of an investigation from the State Administration for Market Regulation (“SAMR”) that it had commenced an investigation pursuant to the PRC Anti- monopoly Law. The investigation is ongoing and we are fully cooperating with the SAMR. We have established a special task-force with leaders from our relevant business units to conduct internal reviews. We will continue to actively communicate with the SAMR on compliance with regulatory requirements. We will further update the market when the investigation is concluded.
Update on Ant Group
On Nov. 3, 2020, Ant Group announced the suspension of its proposed dual listings and initial public offering on the Shanghai Stock Exchange STAR board and the Hong Kong Stock Exchange. Due to recent significant changes in the Fintech regulatory environment in China, Ant Group is in the process of developing its rectification plan, which will need to go through the relevant regulatory procedures. Therefore, Ant Group’s business prospects and IPO plans are subject to substantial uncertainties. Currently, we are unable to make a complete and fair assessment of the impact that these changes and uncertainties will have on Alibaba Group. We will update the market once Ant Group has completed the relevant regulatory procedures for its rectification plan.
Key operational metrics can be found on here (starting from page 6).