📦 Alibaba: The Great Unbundling
How the Chinese giant will break up its business to unlock shareholder value
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Alibaba (BABA), the sprawling titan of e-commerce, cloud computing, and digital media, recently reported its Q4 FY23 performance, ending March 2023.
Despite a tenfold growth in revenue since its September 2014 IPO in the US, BABA's investment returns have remained flat. This stagnation raises the question: How does a company with such phenomenal growth show such meager investment performance?
Today, we’ll cover the following:
The Great Unbundling.
Key quotes from the earnings call.
What to watch looking forward.
Founded in 1999, Alibaba has grown into a giant conglomerate with a market cap of around $227 billion, making it the 40th largest company globally. It's best known for Tmall and Taobao, China's two largest e-commerce platforms, ranked among the top six most valuable retail brands worldwide by Kantar Brandz. As of FY22, Alibaba reached the milestone of one billion consumers in China.
Before we begin, let’s talk about how Alibaba makes money.
Its revenue is spread across six segments:
🇨🇳 China commerce (67% of revenue).
🌍 International commerce (8 %).
🏠 Local consumer services (6%).
🚛 Cainiao (6%).
☁️ Cloud (9%)
🍿 Digital Media (4%).
It’s crucial to note the China Commerce segment drives all the profits and cash flow for the company, with all other divisions currently operating at a loss on a GAAP basis.
Historically, TMALL and TaoBao have funded investments in all other segments. But this year, Alibaba is starting on a new path.
The company announced it would split its business into six separate divisions, allowing units like Alibaba Cloud to independently raise funding through IPOs. This shakeup will have far-reaching implications for Alibaba's business model and its shareholders.
Let’s take a closer look at Alibaba's multifaceted ecosystem and its leadership. The chart below gives an excellent overview of Alibaba’s sprawling ecosystem:
Alibaba's rise to prominence is largely credited to its charismatic founder, Jack Ma. A self-made billionaire, Ma is one of China's most successful entrepreneurs, revered for his innovative thinking and exceptional ability to connect with people. His leadership propelled Alibaba's growth and success from its early days.
However, the reins of Alibaba are now in the hands of Daniel Zhang, the chairman and CEO. A Harvard Business School graduate, Zhang brings over two decades of experience in the e-commerce industry. Under his stewardship, the company continues to evolve and adapt to the ever-changing tech landscape.
With a strategic pivot on the horizon, let's dive into Alibaba's most recent quarter.
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