Alibaba Group Holding Ltd. (BABA) is a holding company legally domiciled in the Cayman Islands but which conducts its e-commerce businesses through its Chinese subsidiaries and variable interest entities (VIEs). Its primary business is to offer a digital marketplace where consumers and merchants can connect and buy and sell from each other. Alibaba operates its business through four primary segments, led by its giant e-commerce operations.
Chief among its competitors are other established Chinese e-commerce and Internet companies, such as Tencent Holdings Ltd., as well as global and regional e-commerce companies, such as Amazon.com Inc. (AMZN). Since Alibaba also operates in the cloud-computing business and digital-media and digital-entertainment businesses, it competes with companies specializing in those markets as well.
- Alibaba provides digital marketplaces for merchants and consumers.
- Alibaba's largest business is its core e-commerce operations.
- Alibaba aims to be a leader in the development of the infrastructure of commerce.
- Alibaba and other giant tech companies in China have been ordered by Chinese authorities to stop blocking users of their apps from accessing rivals' services from within those apps.
Alibaba files financial statements with the U.S. Securities and Exchange Commission (SEC) and does so in accordance with generally accepted accounting principles (GAAP). The company follows a reporting schedule where the end of its fiscal year (FY) occurs at the end of March.
The company also reports certain non-GAAP financial measures, such as adjusted earnings before interest, taxes, amortization, and depreciation (EBITDA), and adjusted EBITA, which refers to earnings before interest, taxes, and amortization. Although Alibaba's reporting currency is the Renminbi, the company provides conversions into U.S. dollars, which are used in this story.
Alibaba reported financial results in early August for Q1 of its 2022 fiscal year (FY), the three-month period ended June 30, 2021. Net income fell 7.8% year over year (YOY) to $6.6 billion. Revenue, however, rose 33.8% YOY to $31.9 billion. Adjusted EBITA, the profit metric Alibaba uses for its individual business segments, was down 8.0% to $6.5 billion.
In its quarterly earnings report the company highlighted the growth in its annual active consumers, which increased to approximately 1.2 billion. Alibaba also noted that it was investing its excess profits and additional capital to support its merchants and for continued growth into new markets. The company said it was increasing its share repurchase program from $10 billion to $15 billion, which is the largest share buyback program in its history.
Alibaba’s Business Segments
Alibaba monetizes its services through four main business segments that it formally names as follows:
- Commerce (formerly Core Commerce)
- Cloud Computing
- Digital Media and Entertainment
- Innovation Initiatives and Others
The company provides segment breakdowns of revenue and adjusted EBITA. The company also reports certain unallocated items, which primarily relate to corporate administrative costs and other miscellaneous items not allocated to its individual segments. These unallocated items were excluded from the percentages in the pie charts below and in the individual business segment sections below.
Alibaba's commerce segment is comprised of its various digital retail and wholesale marketplaces, as well as logistics and local consumer services. The company generates revenue from merchants through the sale of a variety of marketing services, membership fees, customer management services, product sales, commissions on transactions, and software service fees. The company generates revenue from local consumers through platform commissions and on-demand delivery service fees.
The commerce segment is Alibaba's largest source of revenue at $27.9 billion, or about 88% of the company's total revenue, as of Q1 FY 2022. Revenue for the segment grew 35.2% compared to the same three-month period a year ago.
In terms of income measures, the commerce segment represents about 99% of the company's adjusted EBITA, which fell 11.0% to $7.1 billion in Q1 FY 2022. Losses in two of Alibaba's other business segments partly account for the higher-reported figure in the commerce segment than in adjusted EBITA for the company as a whole.
Alibaba Cloud provides enterprise customers with a complete suite of cloud services, including database, storage, management and application services, big data analytics, a machine-learning platform, and other services. The company's cloud computing segment generates revenue from enterprise customers based on the duration and specific usage of the services.
Cloud computing is Alibaba's second-largest source of revenue at $2.5 billion, or about 8% of total revenue, as of Q1 FY 2022. Revenue for the segment grew 29.1% compared to the year-ago quarter.
Alibaba reported adjusted EBITA of $53 million for its cloud computing segment in Q1 FY 2022, compared to a loss in adjusted EBITA in the year-ago quarter. The cloud computing segment makes up less than 1% of overall adjusted EBITA.
Digital Media and Entertainment
Alibaba's digital media and entertainment segment exists as part of the company's strategy to capture revenue from consumption beyond its core commerce businesses. The segment generates revenue primarily from customer management services, self-developed online games, and membership subscription fees.
Digital media and entertainment is Alibaba's third-largest source of revenue at $1.3 billion, or about 4% of total revenue, as of Q1 FY 2022. Revenue for the segment grew 15.4% compared to the same quarter a year ago. Alibaba reported a $65 million loss in adjusted EBITA for the segment in Q1 FY 2022.
Innovation Initiatives and Others
Alibaba's innovation initiatives and others segment aims to innovate and develop new services and products that can meet the needs of its customers. Past innovations include digital-navigation app Amap and network-communication app DingTalk. The segment generates revenue primarily through services fees and product sales to consumers and enterprise customers.
Innovation initiatives and others comprise the smallest share of Alibaba's revenue at $213 million, or less than 1% of total revenue, as of Q1 FY 2022. Revenue for the segment rose 37.2% compared to the same three-month period a year ago. Alibaba posted a $333 million loss in adjusted EBITA in Q1 FY 2022.
Alibaba's Recent Developments
On Sept. 13, 2021, The Wall Street Journal reported that China ordered the country's big tech giants, including Alibaba, to stop blocking users of their apps from accessing competitors' services from within those apps. The move by the Chinese authorities is part of a wider-ranging crackdown on the country's technology sector. Alibaba is among other big tech companies in China that have been hit with recent fines for anticompetitive practices.
How Alibaba Reports Diversity and Inclusiveness
As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Alibaba and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Alibaba releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.
Below is a table of potential diversity measurements. It shows whether Alibaba discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Alibaba breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.
|Alibaba Diversity and Inclusiveness Reporting|
|Race||Gender||Ability||Veteran Status||Sexual Orientation|
|Board of Directors||✔|