To The Moon

$Alibaba(BABA)$  $BABA-W(09988)$  After much deliberation going through the latest earnings release, I'd say I'm unimpressed by the latest result despite much marketing effort from industry third party sources including independent analyst.

Much of the investments into Quick Commerce generated nett revenues growth of +6x% yoy (this is on the small base of Eleme) but at the expense of EBITA down by -7x% yoy (on the huge base of entire core China commerce group). Base on rough assumption, it would be roughly a 4:1 ratio in terms of expense to nett revenue gained.

The only redemptions are from Management's verbal assuages that seems to imply higher new customer retention & synergy to existing e-commerce businesses from the new users acquired from quick commerce effort. However, looking at the revenues from e-commerce business, it grew by only +9% with CMR revs growing by +10%. That's hardly any increase from pre-quick commerce venture. Of course, it's not fair to judge it that way because of varying monetization rates. However at the absence of latest gmv data, that's the only way we can monitor. In addition, management commented that monetization rates are highly correlated to gmv seems to imply a so-so performance improvements.

Now that, cash cow business unit is under pressure from quick commerce war, operating cash flow were down -8x% yoy (rough est base on memory). They invest further into AI cloud infrastructure that brought the cashflow further down to -Rmb21B represents a -Rmb3xB figure spent this Q. Most importantly, management seems to not be clear on the direction for monetization. At this point, they seems to only agree on one idea, which is to continue spending on infrastructure to push ahead with scaling law. Management cited global AI infra investments trends while commenting on supply not being able to keep up with demand. However, this is at the back of a false demand in which it's funded by equity rather than real profits or cashflow. At this stage, the right natural direction should be monetization going hand in hand with moderate investment. This is extremely disappointing especially after listening to BIDU earnings call in which they are much clearer & confident on the path to monetization.

Of course,it's not the entire story as stories of Quark empowered AI glasses & Qwen chatbot international launch achieves quite a great user adoption rate. They've integrate Fliggy & Eleme into the core TTG business likely to be powered by Qwen chatbot in the future. AI may well represents future operating system however, I don't see how what "previously seems to be poor" service provider eg.Fliggy could suddenly turn into market leading service provider. I might be wrong but it seems to take more than that to eat into Trip.com lunch. It might take somebody to actually go down there to negotiate a reasonable deal with the actual local businesses rather than simply go say, " we represent the largest group of user, take it or leave it". Of course, not to mention, eleme has since see a huge increase in market share to now being roughly on par with previous market leader, Meituan. This is done with support from Amap which is currently leading map service provider in China. This could may well be the secret sauce in the entire game plan. So far, I haven't heard much about Fliggy metrics from the management which likely means nothing much to show.

Cloud business did grew +34% headline yoy. However 5% growth are driven internally while +29% from external customer. All inclusive, it generated roughly a USD506M EBITA in which half of USD467M goes to SBC (*seem to recall half of this figure is in r&d which likely fully attributes to cloud business). It may make sense to have a large internal usage of computingresources given like Tencent, their business generates a 3x% operating income which is also their pretax profit.

AIDC revenue has slowed down to a +10% yoy with positive EBITA of RMB 162m which is of course a good news in terms of profitability.

All in all, we can only hang on to management remarks for comfort while the numbers tells a different story. This is just a first glance onto earnings. I'll post once I've learned more. Hope my input helps. Cheers.