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 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.

Key Takeaways

  • Alibaba provides digital marketplaces for merchants and consumers.
  • Alibaba's largest business is its core e-commerce operations, but cloud computing is growing the fastest.
  • Alibaba aims to be a leader in the development of the infrastructure of commerce.
  • China's antitrust watchdog launched an investigation into Alibaba in late December 2020.

Alibaba's Financials

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.

Alibaba 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.

The company's revenue rose 36.9% to $33.9 billion in Q3 FY 2021, which ended December 31, 2020. It was slightly above the 35.3% annual rate of growth posted for all of FY 2020, which ended March 31, 2020. Alibaba's net income rose 55.5% to $12.0 billion in Q3 FY 2021 compared to the same quarter a year ago. The company noted that the increase in net income was primarily due to an increase in the net gain from increases in the market prices of its equity investments in publicly traded companies.

Alibaba’s Business Segments

Alibaba monetizes its services through four main business segments that it formally names as follows:

  • Core Commerce
  • Cloud Computing
  • Digital Media and Entertainment
  • Innovation Initiatives and Others

The company provides segment breakdowns of revenue and adjusted EBITA, the latter of which was reported as $9.4 billion for the company for Q3 FY 2021.

Core Commerce

Alibaba's core 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.

Core commerce is Alibaba's largest source of revenue at $30.0 billion, or about 88% of the company's total revenue, as of Q3 FY 2021. Revenue for the segment grew 38.2% compared to the same three-month period a year ago.

In terms of income measures, the core commerce segment represents nearly 100% of the company's adjusted EBITA, which grew 14.7% to $10.2 billion in Q3 FY 2021. Losses in two of Alibaba's other business segments partly account for the higher-reported figure in the core commerce segment than in adjusted EBITA for the company as a whole.

Cloud Computing

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 7% of total revenue, as of Q3 FY 2021. The segment is also the company's fastest-growing source of revenue. Revenue grew 50.3% compared to the year-ago quarter.

Alibaba reported adjusted EBITA of $3 million for its cloud computing segment in Q3 FY 2021, compared to a loss in adjusted EBITA in the year-ago quarter. It was the first time the segment achieved positive adjusted EBITA. The cloud computing segment makes up just a tiny fraction 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 and membership subscription fees.

Digital media and entertainment is Alibaba's third-largest source of revenue at $1.2 billion, or about 4% of total revenue, as of Q3 FY 2021. Revenue for the segment grew 0.6% compared to the same quarter a year ago. Alibaba reported a $213 million loss in adjusted EBITA in Q3 FY 2021.

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 enterprise customers and consumers.

Innovation initiatives and others comprise the smallest share of Alibaba's revenue at $207 million, or less than 1% of total revenue, as of Q3 FY 2021. Revenue for the segment rose 9.5% compared to the same three-month period a year ago. Alibaba posted a $305 million loss in adjusted EBITA in Q3 FY 2021.

Alibaba's Recent Developments

Alibaba announced in late September 2019 its goal of reaching 1 billion annual active consumers in its China consumer business by the end of its 2024 FY, as part of its latest five-year plan. As of December 31, 2020, the company was still short of its goal by 221 million annual active consumers.

In late December 2020, China's market regulator, the State Administration for Market Regulation, said that it had launched an antitrust investigation into Alibaba. The antitrust watchdog noted that it was acting in response to reports that Alibaba was pressuring merchants that sell wares on its platforms not to sell on the platforms of its competitors.

On February 3, 2021, Chinese regulators came to an agreement on a restructuring plan that would turn Alibaba's financial technology affiliate Ant Group Co. into a financial holding company. That change would make the fintech firm subject to similar capital requirements faced by banks. The move comes after an attempted initial public offering (IPO) of Ant was halted by regulators in early November 2020, which was followed in late December 2020 by regulators issuing a statement that they would meet with Ant Group about implementing regulations and other rules.

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        
General Management