Trends seen in key line items of the fiscals show:
The company shows remarkable discipline in revenue segments: Commerce in China consistently accounts for 70%, the rest of the world accounts for 5%, and revenue from other segments also show similar consistency. Costs in key items show a similar trend as well.
What’s important, however, is the massive shift in relevance from « Customer management » (i.e. actual internet commerce) to « Direct Sales », i.e. the network of physical stores the company is rapidly building out.
On the whole, however, earnings per « American Depositary Share » (ADS) has dropped by more than half relative to the prior year.
As per the company, this increase was primarily attributed to:
the higher proportion of the direct sales businesses, such as Sun Art, which resulted in increased cost of inventory as a percentage of revenue.
the growth of « Taocaicai » businesses leading to an increase in logistics costs as a percentage of revenue.
The company’s growth in direct sales and « Taocaicai » segments (which represents the bargain-hunting/ »value deals » business) are in response to rivals JD.com and Pinduoduo who are dominant players in these segments respectively.
The « Digital Media and Entertainment » segment has traditionally been a mixed bag of sorts. While the « gaming » sub-segment within was considered to be rather promising, it’s « content » sub-segment was typically a cash-burner with little to show for it. Both of these factors have changed in recent times.
Alibaba Pictures ended 2021 with the second-highest grossing movie in the world – « 长津湖 » also known as « The Battle at Lake Changjin » – which depicted a Chinese military victory over U.S. forces in the Korean War. The film grossed over $902 million worldwide (with the largest contributor, of course, being China itself). Its sequel in 2022 – « 长津湖之水门桥 » also known as « Water Gate Bridge » – has grossed over $626 million so far this year. The company heralds this as a turning point for this sub-segment.
On the other hand, the company’s gaming sub-segment had also faced pressure during the tech crackdown for reasons that were claimed to be « cultural » in nature by various State organs and unrelated to reining in « tech giants ». This perception witnessed a shift earlier this week with approvals granted to a slew of games, following which the stock rose nearly 15% on the 8th of May.
Given all these facts, would this mean it’s a time to start « buying in »? This question needs a more-nuanced consideration.
Ratio Analysis and Price Trajectories
In a style similar to that in past articles, lets take a look at the price ratios for the company’s ADS from mid-2021 (when the crackdown began) till the beginning of this month.
