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.
  • Alibaba announced that it will acquire a controlling stake in Sun Art Retail Group, a leading hypermarket and supermarket operator in China.

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 30.3% to $22.8 billion in Q2 FY 2021, which ended September 30, 2020. It was slightly lower than the 35.3% annual rate of growth posted for all of FY 2020, which ended March 31, 2020. Alibaba's net income fell 62.5% to $3.9 billion in Q2 FY 2021 compared to the same quarter a year ago. The company noted that decrease in net income was primarily due to net income in the prior year's quarter being inflated by a gain on the receipt of a 33% equity interest in Ant Group, as well as an increase in share-based compensation expense related to Ant Group in the present quarter. The decline in net income was a significant change from the annual growth of 74.9% posted for FY 2020.

Alibaba’s Business Segments

Alibaba monetizes its services through four main business segments that it formally names as: core commerce, cloud computing, digital media and entertainment, and innovation initiatives and others. The company provides segment break downs of revenue and adjusted EBITA, the latter of which was reported as $6.1 billion for the company for Q2 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 $19.3 billion, or about 84% of the company's total revenue, as of Q2 FY 2021. Revenue for the segment grew 29.3% compared to the same three-month period a year ago.

In terms of income measures, the core commerce segment represents 100% of the company's adjusted EBITA, which grew 19.1% to $6.8 billion in Q2 FY 2021. Losses in 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 $2.2 billion, or about 10% of total revenue, as of Q2 FY 2021. The segment is also the company's fastest-growing source of revenue. Revenue grew 60.4% compared to the year-ago quarter. Alibaba reported a loss in adjusted EBITA of $23 million for its cloud computing segment in Q2 FY 2021.

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 5% of total revenue, as of Q2 FY 2021. Revenue for the segment grew 8.4% compared to the same quarter a year ago. Alibaba reported a $105 million loss in adjusted EBITA during in Q2 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 $173 million, or less than 1% of total revenue, as of Q2 FY 2021. Revenue for the segment rose 10.2% compared to the same three-month period a year ago. Alibaba posted a $351 million loss in adjusted EBITA in Q2 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 September 30, 2020, the company was short of its goal by 243 million annual active consumers.

On October 19, 2020, Alibaba announced that it was going to invest approximately $3.6 billion to acquire a controlling stake in Sun Art Retail Group Ltd., one of China's leading hypermarket and supermarket operators. The investment will raise Alibaba's aggregate direct and indirect stake in Sun Art to approximately 72%.

How Alibaba Reports Diversity & 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 & Inclusiveness Reporting
  Race Gender Ability Veteran Status Sexual Orientation
Board of Directors        
General Management