Alibaba Group Holding Limited (BABA) is a holding company legally domiciled in the Cayman Islands, but which conducts its e-commerce businesses through its Chinese subsidiaries and convertible interest entities (VIEs). Its primary business is to offer a digital marketplace where consumers and merchants can connect and buy and sell. Alibaba operates its business through four primary segments, led by its massive e-commerce operations.
Major among its competitors are other established Chinese e-commerce and Internet companies, such as Tencent Holdings Ltd., as well as global and regional e-commerce companies, such as Amazon.com Inc. (AMZN). Since Alibaba also operates in the cloud-computing business and digital-media and digital-entertainment businesses, it also competes with companies specializing in those markets.
- Alibaba provides a digital marketplace for merchants and consumers.
- Alibaba’s largest business is its core e-commerce operation.
- Alibaba aims to be a leader in the development of commerce infrastructure.
- Alibaba and other Chinese tech giants have been ordered by Chinese authorities to block users of their apps from accessing rivals’ services from within those apps.
Alibaba’s Financial Situation
Alibaba files financial statements with the US Securities and Exchange Commission (SEC) and does so in accordance with generally accepted accounting principles (GAAP). The company follows a reporting schedule where its fiscal year (financial year) ends at the end of March.
The company also reports certain non-GAAP financial measures, such as adjusted earnings before interest, taxes, amortization and depreciation (EBITDA), and adjusted EBITA, which refers to earnings before interest, taxes, and amortization. Although Alibaba’s reporting currency is the Renminbi, the company provides conversion to US dollars, which is used in this story.
Alibaba reported financial results in early August for Q1 of its 2022 fiscal year (FY), the three-month period ended June 30, 2021. Net income fell 7.8% year over year (YOY) to $6.6 billion. However, revenue grew 33.8% YOY to $31.9 billion. Adjusted EBITA, the profit metric Alibaba uses for its individual business segments, was down 8.0% to $6.5 billion.
In its quarterly earnings report, the company highlighted the growth in its annual active subscribers, which grew to nearly 1.2 billion. Alibaba also noted that it was investing its additional profits and additional capital to support its merchants and continued growth in new markets. The company said it is increasing its share repurchase program from $10 billion to $15 billion, the largest share repurchase program in its history.
Alibaba’s Business Segments
Alibaba monetizes its services through four main business areas which are formally named as follows:
- Commerce (formerly Core Commerce)
- Cloud Computing
- Digital Media & Entertainment
- Innovation Initiatives and others
The company provides segment analysis of revenue and adjusted EBITA. The Company also reports certain non-allocated items, which are primarily related to corporate administrative costs and other miscellaneous items that have not been allocated to its individual segments. These non-allocated items were excluded by percentage in the pie chart below and in the individual business volume sections below.
Alibaba’s commerce segment includes its various digital retail and wholesale markets as well as logistics and local consumer services. The company generates revenue from merchants through the sale of a variety of marketing services, membership fees, customer management services, product sales, commissions on transactions, and software service fees. The company generates revenue from local consumers through platform commissions and on-demand delivery service fees.
The commerce segment is Alibaba’s largest source of revenue at $27.9 billion, or about 88% of the company’s total revenue as of the first quarter of fiscal 2022. Revenue for this segment grew by 35.2% as compared to the same three-month period a year ago.
In terms of earnings measures, the Commerce segment represents approximately 99% of the Company’s adjusted EBITA, Which fell 11.0% to $7.1 billion in the first quarter of FY 2022. Losses in Alibaba’s two other business segments are partly attributable to higher-reported figures in the commerce segment than adjusted EBITA for the company.
Alibaba Cloud provides enterprise customers with a full suite of cloud services, including database, storage, management and application services, big data analytics, machine-learning platforms, and other services. The company’s cloud computing segment generates revenue from enterprise customers based on the duration and typical usage of the services.
As of the first quarter of fiscal 2022, cloud computing is Alibaba’s second largest revenue source with $2.5 billion, or about 8% of total revenue. Segment revenue grew 29.1% compared to the year-ago quarter.
Alibaba informed of Adjusted EBITA for the cloud computing segment of $53 million in the first quarter of fiscal 2022 compared to a loss in adjusted EBITA in the year-ago quarter. The cloud computing segment makes up less than 1% of overall adjusted EBITA.
Digital Media & Entertainment
Alibaba’s digital media and entertainment segment exists as part of the company’s strategy to generate revenue from consumption beyond its core commerce businesses. The segment primarily generates revenue from customer management services, self-developed online games and subscription subscription fees.
As of the first quarter of fiscal 2022, digital media and entertainment is Alibaba’s third largest source of revenue, accounting for $1.3 billion, or about 4% of total revenue. The segment’s revenue grew 15.4% compared to the same quarter a year ago. Alibaba Reported a loss of $65 million in adjusted EBITA for the segment in Q1 FY 2022.
Innovation Initiatives and others
Alibaba’s innovation initiatives and other segments aim to develop and develop new services and products that can meet the needs of its customers. Past innovations include the digital-navigation app Amap and the network-communications app DingTalk. This segment primarily generates revenue through service charges and product sales to consumers and enterprise customers.
Innovation initiatives and others accounted for the smallest share of Alibaba’s revenue at $213 million, or less than 1% of total revenue, as of Q1 FY 2022. Revenue for the segment grew 37.2% compared to the same three-month period a year ago. Alibaba Posted a loss of $333 million in adjusted EBITA in Q1 FY 2022.
Recent developments in Alibaba
On September 13, 2021, The Wall Street Journal reported that China ordered the country’s big tech giants, including Alibaba, to block users of their apps from accessing competitors’ services from within those apps. The move by Chinese officials is part of a wider crackdown on the country’s technology sector. Alibaba is one of China’s other big tech companies that have recently been fined for anti-competitive practices.
How Alibaba Reports Diversity and Inclusion
As part of our effort to raise awareness of the importance of diversity in companies, we offer investors a glimpse of Alibaba’s transparency and its commitment to diversity, inclusivity and social responsibility. We examined data released by Alibaba to show you how it reports the diversity of its board and workforce to help readers make educated buying and investment decisions.
Below is a table of possible variation measurements. It shows whether Alibaba discloses its data about its board of directors, C-suite, general management and diversity of employees, as marked with ✔. It also shows whether Alibaba breaks down those reports to reveal its own diversity based on race, gender, ability, veteran status, and LGBTQ+ identity.
|Alibaba’s diversity and…|