Alibaba Revenue Beats as AI Spend Weighs on Bottom Line
7 Min. Read Time
Alibaba Q2 Earnings Overview
Alibaba reported a top-line revenue beat versus analyst expectations, though the bottom line disappointed. The culprit was AI-driven capital expenditures, which surged +75% YoY to RMB 67.68 billion ($9.98 billion), driven by “continued investments in AI infrastructure to meet strong and growing customer demand.” Management noted that their cumulative capital expenditure (capex) target is RMB 380 billion, of which they have already spent RMB 190 billion. We believe it is important to note that Alibaba’s AI capex experiences volatility due to price changes for chips as well as policy-driven changes in suppliers. Essentially, the company is halfway through its current capex cycle.
Better monetization of cloud computing was a bright spot during the quarter, along with improving unit economics and top-line growth in instant commerce, though the unit is likely to remain unprofitable until 2029. Unfortunately, there was no mention of the restaurant delivery war nor of regulatory efforts to curtail it during the earnings call.
While results were “in line”, i.e. not great, positioning is very light, in my opinion. For an inexpensive AI play, Alibaba looks compelling to me.
- Revenue +9% YoY to RMB 268.953B ($39.639B) from RMB 247B, versus expectations of RMB 268B
- Alibaba E-Commerce Group revenue +4% to RMB 205.862B from RMB 198.812B, as Adjusted EBITDA -1% to RMB 39.749B from RMB 39.988B
- China E-Commerce Revenue: -8% YoY to RMB 110.9B ($16.345B) from RMB 120.874B
- China Quick Commerce Revenue: +45% to RMB 36.295B ($7.855B) from RMB 36.725B
- International E-Commerce Revenue: RMB 27.761 ($4.091B) from RMB 27.761B
- AI Cloud Comouting Services Revenue +45% to RMB 48.437B ($7.139B) as Adjusted EBITDA +133% to RMB 5.628B from RMB 2.419B
- Adjusted Net Income -38% to RMB 20.715B ($3.053B) from RMB 35.51B, versus expectations of RMB 25.35B
- Adjusted EPS -42% to RMB 8.52 ($1.26) from RMB 14.75, versus expectations of RMB 11.28
- The company bought 1.7 million US-listed shares for $162 million.
Key News
Asian equities rebounded, led by AI picks & shovels in South Korea, Taiwan, and Japan, except for onshore China's Science and Technology (STAR) Board, which posted a small loss as onshore-listed semis were off, though China's technology hardware and communication equipment sub-sectors rebounded. Hong Kong and Mainland China managed small gains on light volumes and news.
Western media focused on Evergrande's founder, Hui Ka Yan, yesterday, who was sentenced to life in jail for crimes associated with Evergrande, though Mainland media noted he had all of his personal assets seized and was among 56 people, including two of his sons and many of Evergrande's senior management, sentenced to jail for various lengths of prison sentences. Nonetheless, real estate stocks in both Hong Kong and Mainland China had a strong day, as Shanghai's local government, following a similar move by Beijing's local government, released the "Notice on Optimizing Measures for Real Estate in Shanghai," which comprises eight measures to lower hurdles for first and second-home purchases. On real estate, investors should be looking out the windshield, not the rearview mirror.
Unitree fell -18.7%, as investors lucky enough to get an IPO allocation took profits after yesterday's massive move. Meanwhile, Unitree's founder, Wang Xingxing, spoke at the World Robot Conference, stating that the biggest bottleneck in humanoid robot development is integrating AI with the robots, as they struggle to replicate human behavior. He stated, "Robotics technology has already improved significantly, and its future development speed may be even faster than I predict."
Healthcare was the top-performing sector in both markets, following Moderna's announcement of a cancer breakthrough yesterday.
Alibaba gained +1.61% in Hong Kong overnight, in advance of results, as Mainland investors bought $281 million (HKD 2.21 billion) worth of its Hong Kong shares via Southbound Stock Connect. Tencent gained +0.94% as the company restarted its stock buyback following its Q2 financial results, buying back 662,000 shares overnight. Baidu gained +2.45%, as the company's partnership with Uber on Apollo Go-powered autonomous robotaxis goes live in Dubai, while Mainland media noted the company's progress in listing its Kunlun AI semiconductor unit at a $50 billion valuation. Remember, Baidu's full market cap is only $31 billion! Kuaishou was crushed overnight, falling -11.01% after yesterday's light Q3 guidance.
Mainland investors sold a net -$1.33 billion worth of Hong Kong stocks and ETFs today, as the Hong Kong Tracker ETF experienced a second day of large net selling. Mainland China managed a small gain following yesterday's wide fall. It is worth noting that one of the ETFs favored by China's "National Team", i.e. investment firms associated with sovereign wealth, experiencerd a very large inflow yesterday
The 1 and 5-Year Loan Prime Rates (LPRs) were left unchanged overnight at 3.0% and 3.5, as expected.
Unitree’s IPO exceeded expectations, though it was worth comparing it to chip maker CXMT, as it helps explain where the two companies stand from a development and financial perspective. CXMT’s total market cap is $571 billion versus Unitree’s $50 billion. CXMT’s first-day trading volume was 2,990,129,163 shares, versus Unitree’s 25,657,935 shares. The first-day value of trading in CXMT was $20 billion, versus Unitree’s $3.44 billion. It is still early days for Unitree!
Other notable financial results post-Hong Kong close included:
Ping An Insurance, which reported revenue +12.6% YoY to RMB 615B while net profit +36% to RMB 92.585B
NetEase:
- Revenue grew +7.9% to RMB 30.1B ($4.4B) from RMB 27.89B, versus expectations of RMB 29.45B
- Adjusted Net Income grew to RMB 7.7B ($1.1B) from RMB 9.53B, versus expectations of RMB 10.19B
- Adjusted EPS grew to RMB 12.02 ($1.77) from RMB 14.81 versus expectations of RMB 15.59
Autohome:
- Revenue declined to RMB 1.198B ($176mm) from RMB 1.76B, versus expectations of RMB 1.18B
- Adjusted Net Income declined to RMB 277mm ($49mm) from RMB 475mm, versus expectations of RMB 236mm
- Adjusted EPS declined to RMB 2.46 ($0.36) from RMB 4.04 versus expectations of RMB 2.04
- The company spent $200mm buying 10,627,269 shares in the quarter
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | 0.8% |
| Hang Seng Tech | HSTECH Index | 0.4% |
| Hong Kong Turnover | HKTurn Index | 6.3% |
| Hong Kong Short Sale Turnover | HKSST Index | -5.3% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 0.2 |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | -1,329.77 |
| China (Shanghai) | SHCOMP Index | 0.2% |
| China (Shenzhen) | SZCOMP Index | 0.8% |
| China (STAR Board) | Star50 Index | -0.9% |
| Mainland Turnover | .chturn Index | -16.6% |
| Japan | NKY Index | 1.4% |
| India | SENSEX Index | 0.8% |
| Indonesia | JCI Index | 1.7% |
| Malaysia | FBMKLCI Index | 0.3% |
| Pakistan | KSE100 Index | -0.1% |
| Philippines | PCOMP Index | 1.3% |
| South Korea | KOSPI Index | 5.9% |
| Taiwan | TWSE Index | 0.5% |
| Thailand | SET Index | 0% |
| Singapore | STI Index | -0.4% |
| Australia | AS51 Index | 0.3% |
| Vietnam | VNINDEX Index | -0.0005 |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 94 | 82 |
| Advancing Stocks | 369 | 3649 |
| Declining Stocks | 156 | 1368 |
| Outperforming Factors | Growth, Liquidity, EPS Revisions | ESG Score, Value, Dividend Yield |
| Underperforming Factors | None | Momentum, Liquidity, Large Caps |
| Top Sectors | Healthcare, Materials, Discretionary | Healthcare, Discretionary, Communication |
| Bottom Sectors | Industrials, Staples | Energy, Industrials, Utilities |
| Top Subsectors | Non Ferrous Metal, Pharmaceuticals, Auto | Biotech, Precious Metals, Forest |
| Bottom Subsectors | Paper/Packaging, Media/Entertainment, Consumer Staples Distribution | Power Generation Equipment, Soft Drinks, Oil/Gas |
| Southbound Connect Buys | Alibaba (Very Large), Kuaishou (Large), Genscript Bio | |
| Southbound Connect Sells | HK Tracker ETF (Very Large), Everest Medicine, SMIC, Tencent (Moderate) |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | 1.1 |
| Communication Services | 11 | 0.38 |
| Consumer Discretionary | 28 | 1.62 |
| Consumer Staples | 13 | -0.12 |
| Energy | 6 | 0.35 |
| Financials | 25 | 0.63 |
| Health Care | 16 | 4.08 |
| Industrials | 22 | -0.7 |
| Information Technology | 12 | 0.32 |
| Materials | 14 | 3.47 |
| Real Estate | 7 | 1.17 |
| Utilities | 11 | 0.8 |
| Mainland China Listed | 386 | 0.32 |
| Communication Services | 8 | 0.98 |
| Consumer Discretionary | 26 | 1.16 |
| Consumer Staples | 19 | -0.04 |
| Energy | 12 | -0.37 |
| Financials | 64 | 0.3 |
| Health Care | 31 | 2.6 |
| Industrials | 58 | -0.33 |
| Information Technology | 95 | 0.15 |
| Materials | 52 | 0.88 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | 0.9 |
| Alibaba HK | 9988 HK Equity | 1.6 |
| JD.com HK | 9618 HK Equity | 1.7 |
| NetEase HK | 9999 HK Equity | -0.5 |
| Yum China HK | 9987 HK Equity | 2.3 |
| Baozun HK | 9991 HK Equity | 3.8 |
| Baidu HK | 9888 HK Equity | 2.4 |
| Autohome HK | 2518 HK Equity | -2.2 |
| Bilibili HK | 9626 HK Equity | -3 |
| Trip.com HK | 9961 HK Equity | 2.6 |
| EDU HK | 9901 HK Equity | 3.4 |
| Xpeng HK | 9868 HK Equity | 4.1 |
| Weibo HK | 9898 HK Equity | -2.6 |
| Li Auto HK | 2015 HK Equity | 5.5 |
| Nio Auto HK | 9866 HK Equity | 4.5 |
| Zhihu HK | 2390 HK Equity | 0.6 |
| KE HK | 2423 HK Equity | -1 |
| Tencent Music Entertainment HK | 1698 HK Equity | 2.6 |
| Meituan HK | 3690 HK Equity | -1.4 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ALIBABA GROUP HOLDING LTD | 1.6 |
| TENCENT HOLDINGS LTD | 0.9 |
| KUAISHOU TECHNOLOGY | -11 |
| XIAOMI CORP-CLASS B | 1.2 |
| CSPC PHARMACEUTICAL GROUP LT | 9.6 |
| EVEREST MEDICINES LTD | 41.4 |
| SEMICONDUCTOR MANUFACTURI-H | -1.2 |
| GENSCRIPT BIOTECH CORP | 13.6 |
| MINIMAX GROUP INC | 6.2 |
| WUXI BIOLOGICS CAYMAN INC | 3.6 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ZHONGJI INNOLIGHT CO LTD-A | 1 |
| CXMT CORP-A | 0 |
| CAMBRICON TECHNOLOGIES-A | -3.8 |
| GIGADEVICE SEMICONDUCTO-CL A | -0.1 |
| WUXI APPTEC CO LTD-A | 2.4 |
| SUZHOU TFC OPTICAL COMMUNI-A | -0.4 |
| ZIJIN MINING GROUP CO LTD-A | 4.5 |
| JIANGSU HENGRUI PHARMACEUT-A | -6 |
| HENGTONG OPTIC-ELECTRIC CO-A | 5.3 |
| EOPTOLINK TECHNOLOGY INC L-A | 0.6 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.72 versus 6.73 yesterday
- CNY per EUR 7.86 versus 7.82 yesterday
- Yield on 10-Year Government Bond 1.68% versus 1.68% yesterday
- Yield on 10-Year China Development Bank Bond 1.76% versus 1.75% yesterday
- Copper Price +0.19%
- Steel Price -0.10%
