• Numbers of Taobao and Tmall consumers, merchants rise YoY in the third quarter
• Alibaba International Digital Commerce Group's quarterly revenue jumps 44% YoY

Alibaba Group has upped its share buyback by $25 billion and scored early wins in its battle to attract buyers and merchants in the China commerce arena, the holding company said in its latest quarterly earnings report.

During the three months ended Dec. 31, a greater number of transacting buyers and merchants congregated on Alibaba's China marketplaces than a year earlier. The hubbub of commerce in China and beyond helped lift Alibaba's third-quarter revenue 5% higher year-over-year. 

On a second front, Alibaba said quarterly revenue at its cloud-computing business gained 3% year-over-year after shifting focus to public cloud business and scaling back lower-margin project-based contracts.

Against a backdrop of stiff competition and rapid technological change, Alibaba announced a new management lineup and overhauled its strategy last year to jumpstart stalled growth.

“Our top priority is to reignite the growth of our core businesses, e-commerce and cloud computing,” said Alibaba Group's CEO Eddie Wu on Wednesday. Wu became CEO of Alibaba Group and Alibaba Cloud Intelligence Group on Sept. 10, as well as CEO of Taobao and Tmall Group on Dec. 20. 

Wu has vowed to deploy Alibaba's considerable financial resources to drive business' growth, a promise he reiterated on Wednesday. That still leaves ample firepower to bolster shareholder returns through the next three fiscal years.

Alibaba boosted its share repurchase program by an additional $25 billion and extended it through the end of March 2027. This follows its first-ever dividend announced in November.

“If you buy Alibaba stock, it's like you bought a 10-year Treasury bond with the upside of stock-price appreciation,” said Alibaba's Chairman Joe Tsai.

After upsizing the buyback, it has $35.3 billion left in the program. Alibaba is targeting a net reduction in share count of at least 3% annually over the coming three fiscal years.

“This is a sizable step up,” said Alex Yao, an analyst at JP Morgan.

China Retail

Consumer sentiment in China is gradually returning to secular growth post-pandemic and consumption continues to digitize. Between January and November, the country's online retail sales rose 11% year-over-year. Still, against a backdrop of continuing economic uncertainty, mass affluent and lower-income Chinese consumers have sought value for money, according to retail experts.

"China has entered a new norm of consumption pattern where the consumption upgrade in quality for goods and services continues, but consumers are turning more sensitive on prices," said Citigroup analysts, including Alicia Yap, in a report on Jan. 10.

Alibaba executives have also flagged price-sensitive behavior, drawing upon insights from China's biggest digital retail platform Taobao and the holding company's other marketplaces. To meet consumers' demand for value, Taobao and Tmall Group is overhauling its approach to provide different segments of Chinese consumers with products and services at attractive prices.

There are signs that the approach is gaining traction among consumers. During the third quarter, Taobao and Tmall Group's revenue rose 2% year-over-year. Its online GMV swelled year-over-year, with the number of transacting buyers and order volume growing strongly, partly offset by a decrease in average order value. The ranks of its loyalty membership program 88VIP surpassed 32 million in the quarter.

Likewise, the number of merchants operating on its platform during the quarter rose by double digits year-over-year, a trend that has persisted over the past four quarters.

The world's largest shopping spree, 11.11, took place during Alibaba's third fiscal quarter. Order volume climbed by double digits year-over-year during the second half of the quarter, reflecting increasing consumer demand and willingness to purchase on its platform driven by its price-competitive strategy.

Wu is keeping his foot on the gas pedal. He outlined a set of comprehensive capability upgrades for Taobao and Tmall Group and predicted a year of "significant" investment.

“We will step up investment to improve users' core experiences to drive growth in Taobao and Tmall Group and strengthen market leadership in the coming year,” said Wu.

Taobao and Tmall's China commerce retail business' customer management revenue, mainly marketing services and commissions on transactions, remained stable year-over-year, largely due to healthy growth in online GMV, excluding unpaid orders, partly offset by a decline in the overall take rate. The overall take rate decreased slightly year-over-year, primarily because of the increase in GMV from Taobao merchants.

"We see this as early success of the execution of our strategy" as Alibaba builds up the supply of price-competitive products, said Alibaba's Chief Financial Officer Toby Xu on a post-earnings call with analysts.

International Growth

Looking further afield, Alibaba International Digital Commerce Group's quarterly revenue leaped 44% year-over-year, and its combined orders jumped 24% year-over-year.

"There is huge potential for AIDC to increase user penetration in the majority of overseas markets," said Jiang Fan, AIDC's CEO on the post-earnings call.

AIDC's cross-border businesses posted rapid year-over-year growth in response to increasing global demand for high-quality products at attractive prices. To sustain this momentum and provide differentiated services to customers, the holding company boosted investments in the business during the quarter.

International retail marketplace AliExpress delivered over 60% year-over-year order growth in the quarter, driven by new service Choice. Choice represented about half of AliExpress' total orders in January and continues to deliver rapid order growth.

"Its high-quality user experience has driven significant user growth and transaction growth on the AliExpress platform and going forward, we'll continue to invest resolutely to further increase Choice's penetration and provide a better experience to more users," said Jiang.

During the quarter, e-commerce platform in Türkiye, Trendyol, continued its robust double-digit order growth and expanded in the Middle East, while in Southeast Asia, Lazada's loss per order narrowed year-over-year.

AIDC's losses increased year-over-year primarily because of increased investment in businesses, including AliExpress' Choice and Trendyol's international business, partly offset by improvements in monetization.

Cloud, Cainiao and Others

Quarterly revenue from the Cloud Intelligence Group grew 3% year-over-year. It improved revenue quality by cutting back on low-margin project-based contracts and focusing on public cloud products and services, which grew healthily.

Smart logistics group Cainiao's quarterly revenue rose 24% year-over-year, largely driven by revenue from cross-border fulfillment solutions. Order volume for its premium five-day delivery service achieved robust triple-digit quarter-over-quarter growth.

Alibaba's Local Services Group saw quarterly revenue jump 13% year-over-year, driven by the healthy growth of delivery platform Ele.me and rapid growth of navigation tool Amap.

During the quarter, order growth of the Local Services Group topped 20% year-over-year. The business group's annual active consumers reached over 390 million and their annual purchasing frequency picked up strongly year-over-year for the twelve months ended Dec. 31. Its losses for the quarter continued to narrow, driven by improving business scale and efficiency.

Digital Media and Entertainment Group's quarterly revenue jumped 18% year-over-year, driven by strong revenue growth of offline entertainment businesses of Alibaba Pictures, which serviced almost all major concerts in China and accounted for more than half of China's total box office during the quarter.

“During a dismal economic outlook, consumers tend to seek entertainment and leisure services to balance and offset anxieties in their lives,” said the Citigroup analysts in the Jan. 10 report.

Synergies

In March last year, Alibaba embarked on a major reorganization designed to unlock value. In the first nine months of the fiscal year, Alibaba has exited about $1.7 billion worth of non-core investments. "That's a pretty good pace," said Alibaba's Chairman Joe Tsai.

Currently, one of the best ways for Alibaba to create value is by generating synergies between core businesses.

"I see very strong potential for greater synergy between Alibaba Cloud and the Taobao and Tmall Group, especially driven by AI," said Wu. Alibaba is in the early stages of leveraging its proprietary large language model, Tongyi Qiawen, to enhance search conversion and monetization in its Taobao app.

Alibaba is also continuing to explore value creation through separate financings of business units. "But given the challenging market conditions...we're not in a hurry on the timing of these transactions," said Tsai.

Solid Results

Revenue for the third quarter rose 5% year-over-year to RMB260.35 billion ($36.67 billion), in line with consensus forecasts. Adjusted EBITA, a non-GAAP measurement, edged 2% higher year-over-year to RMB52.84 billion. Non-GAAP net income in the quarter slipped 4% to RMB47.95 billion.

Free cash flow, a non-GAAP measurement of liquidity, was RMB56,540 million, a decrease of 31% from the same quarter of 2022. The decrease in free cash flow was attributed to increased capex and several one-time factors, including timing of income tax payments and working capital changes related to several businesses.

 “We delivered a solid quarter as we are executing our focused strategies across the organization,” said Alibaba's Wu.