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In 2019, Jack Ma, the “chief founder” of Alibaba Group Holding Limited (ticker: BABA), Jack Ma, stepped down as chairman and gave way to co-founder Daniel Zhang Yong who rapidly went on to be enter the roster of Time Magazine’s 100 most influential people in 2020. Alibaba’s sprawling business empire was long considered to be driven by those in the chairman’s seat. This, however, changed in April 2023 when the company announced that it will split into 6 units – each of which will managed by its own CEO and board of directors. These units will be free to pursue independent fundraising and a public listing.
Taiwanese-Canadian lawyer and long-time Hong Kong resident Joseph Chung-Hsin Tsai – who left a $700,000-a-year job with Sweden’s Wallenberg family wherein he handled their Asian private equity investments to join Alibaba in 1999 after meeting Mr. Ma – took over as the group’s Chairman six months later. At the same time, Eddie Yongming Wu – another 1999 alumnus who started out as technology director for the group – became the group’s CEO. Reporting segments changed to reflect the “6-unit” change as well.
Source: Company Information
In order, the six major units are:
Taobao and Tmall Group, a China-centered commerce business that comprises of two dominant parts. The first is its retail e-commerce platform which the company contends is the world’s largest retail commerce business in terms of Gross Merchandise Value in the Fiscal Year (FY) that ended March 31, 2024 (or “FY 2024”). The second is the wholesale commerce platform which is China’s largest.
Cloud Intelligence Group, which the company contends is the world’s fourth largest and Asia-Pacific’s largest cloud services provider by revenue in 2023.
International Digital Commerce Group, an internationally-focused commerce business which comprises of two parts. The first are retail e-commerce businesses such as Türkiye-based Trendyol, Singapore-based Lazada, Pakistan- and Bangladesh-serving Daraz, Spain-based Miravia as well as world-spanning AliExpress. The second is its wholesale international commerce business operating as Alibaba.com which the company contends is China’s largest integrated international online wholesale marketplace as of FY 2024.
Cainiao Smart Logistics Network, which operates a global logistics network that aims to fulfill consumer orders within 24 hours in China and within 72 hours anywhere else in the world.
Local Services Group, which includes food and grocery delivery services as well as mobile digital map, navigation and real-time traffic information services.
Digital Media and Entertainment Group, which produces content and operates online long-form video platform Youku.
Three months after the “split” announcement, Mr. Wu took over as CEO of Taobao and Tmall Group as well, which the company clarified four months afterwards will remain wholly owned by Alibaba Group.
Trend AnalysisThe company’s earnings release which, as per the company’s FY reporting standard would be the first quarter of FY 2025, was stated to have missed analysts’ expectations. However, there are grounds for re-examining such an assertion.
Source: Company Information; Leverage Shares analysis
While revenue is currently trending as running slightly above par for FY 2025, Earnings Per Share (EPS) is trending to close out FY 2025 at a solid 24% higher than the previous year. However, it bears noting that despite two full FYs of solid Year-on-Year (YoY) growth, the deep losses sustained in FY 2022 haven’t been fully recovered yet.
With the announcement of new business units also come dedicated financial line items, which were utilized for the first time in the annual report for FY 2024. When considering these new metrics, however, additional depth is available.
Source: Company Information; Leverage Shares analysis
In terms of revenue, the China-focused commerce, logistics and cloud businesses remain fairly consistent in Q1 2025 relative to FY 2024. However, international e-commerce is beginning to contribute more and more while trending to close FY 2025 12% higher than the previous FY. In a similar vein is “Local Services”.
Trends in earnings before interest, taxes, and amortization (EBITA), however, is a much more interesting story. While “Taobao and Tmall” shows stable trends with a modest trend in revenues and EBITA at par, three businesses – cloud, international commerce and logistics – show an explosive improvement in EBITA over the past FY.
Local services and content businesses, at first glance, might seem to be underperformers. But, since local services are currently showing a substantial improvement in terms of losses in the most recent quarter, it’s quite likely that it will break into positive earnings in Q2 2025, i.e. the next earnings release.
The content business has long been an overall underperformer in terms of earnings contribution. While the most recent quarter shows substantially lower losses relative to the past FY, it could be expected that a breakout into positive earnings might be possible, albeit a few quarters down the road.
IPO Outlook and Market ActionsIf “Taobao and Tmall” is the anchor of the group, then the progressive improvement in metrics will be the signal for the other five units’ respective IPOs. Going by the metrics, the most promising candidates for a spin-off and IPO would be Cloud Intelligence and Cainiao Smart Logistics. Given that it’s deeply enmeshed in “Big Tech” with its own AI platform, a “Cloud Intelligence” IPO would be keenly anticipated and likely well received by the investing public, both retail and institutional.
Cainiao is a much more prosaic story. The group has expended considerable resources to build out the infrastructure over the past couple of years in a bid to attain its goal. Infrastructure is a costly business: the fact that relative EBITA contribution turned positive in the previous FY and remains so in the current year might be grounds for the business to secure additional financing via an IPO.
While the International Commerce business has shown a strong uptick in revenues, the fact that it has to burn capital to contend with the Amazons and Shopifys of the world indicate that it has some ways to go. Nonetheless, in the order of precedence, an IPO will likely be a keenly-anticipated development in the course of a year.
Local Services is an interesting business. FY 2025 might be a transformative year in that it might eventually prevail against its myriad competitors in China by producing a positive EBITA by the end. The fact that it offers a “Google Maps” equivalent as a service will likely make it one to watch in the future.
Content is a tough business to sell to investors. There’s a glut in the market and there is likely an upper limit on market penetration that is highly dependent on subscription price. Of all of the group’s businesses, this one will have the longest and hardest road ahead.
Whether an IPO would translate to payoffs to the parent group remains very much in play. However, the solid development in business line items hasn’t been missed by the investing public, both retail and institutional. Considering the fact that the group has been in operation for over a quarter-century and an ostensible pioneer in many ways in its homeland China, traded volumes in its Hong Kong-listed shares (ticker: 9988.HK) has averaged at 3.5 times that of its U.S.-listed American Depositary Shares (one of which equals eight shares) over the past year.
Unlike many other “dual-listed” Chinese companies, volumes and price trends in the Hong Kong-listed shares and U.S.-listed ADS’s have been strongly consistent over the past one year, with a slight edge imputed in valuations for the ADS.
Source: Leverage Shares analysis
Despite the recent earnings ostensibly missed analyst expectations, both the shares and ADS’s rose by 5% on the day after the earnings release and another 2% on the 19th of August. The 19th was an interesting day in terms of volumes: traded volumes in the Hong Kong-listed shares were 14 times that of the ADS. As of 19th of August, the ADS is at 99.1% of the value as of the 21st of August 2023. The share is at 95.3% and the gap seems to be closing.
For a group of this vintage, hype narratives tend to be dated for Chinese investors. However, traded volumes and price trajectories indicate that Chinese investors seem to be in unison with their American counterparts in terms of anticipation.
In ConclusionIt bears noting that an American Depositary Share (ADS), unlike a share, simply accords the investor a portion of profits without signifying ownership; the Chinese government has long held that foreign investors can only hold shares in China-based companies in specific contexts that exclude most of the investing public outside its shores.
Nonetheless, given its quarter-century of operations and expansive global ambitions, the likelihood of the group reneging on its “overseas” investors is likely being deemed low. In the event of an IPO and spin-off wherein a business ostensibly pays the group for its freedom, the cashflows would likely be used by the group to further strengthen “Taobao and Tmall” in its long and cut-throat running battles with the likes of JD.com, Pinduoduo and Meituan (among others) for dominance in China.
While global investors have been divesting from the breadth of investments made in Chinese companies given economic headwinds, the group’s vintage does give it a certain amount of brand equity among sellers, buyers, clients, and investors. While the breadth of China investments might be narrowing for global investors, this group likely stands out as an exception. Any prospective IPO timeline would only be a boost for the stock’s (and ADS’) valuation.
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Notice
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
Cookies
Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.
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