Alibaba FQ4 17 – Intuitive integration

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Signs that Alibaba is moving to make the most of its ecosystem.

• Alibaba reported another excellent set of results which was marred by the normalisation of the tax rate following the ending of a tax break gained by investing in its distribution partner Suning.
• Alibaba has also begun to demonstrate the kind of traits that lead me to think that it has really figured out what it needs to do to become a fully-fledged ecosystem across all aspects of its users’ digital lives.
• FQ4 17 revenues / Adj-EPS were RMB38.6bn / RMB4.35 nicely ahead of consensus estimates of RMB35.9bn / RMB4.86.
• The main driver of the results was Alibaba’s core e-commerce business which posted FQ4 17 revenue growth of 47% to RMB31.6bn.
• This was underpinned by 11% growth in the number of active buyers as well as each user spending significantly more with Alibaba than they have in the past.
• This is how Alibaba has managed to defy my expectations that growth would slow this year.
• Cloud computing and digital media and entertainment each posted triple digit growth albeit from a much lower base.
• The excellent results were marred by an increase in the tax rate which increased to 23% up from 14% in FQ4 16 where it will stay from here.
• The most notable aspect of management’s commentary was the increasing focus on integration of its digital assets.
• This has almost been completed for the digital media assets, giving Alibaba the ability to understand usage patterns across all of its media assets.
• The same thing is going on in its e-commerce assets and it is already beginning to reap the benefits from this by offering this intelligence back to the merchants on its sites.
• This kind of intelligence is what could also allow Alibaba have a big impact in offline retail which still makes up the vast majority of Chinese retail spending.
• The final step should end up being the integration of all of this data into a single repository.
• If Alibaba can to this effectively, it will be able to monetise its traffic far more effectively than it does today as well as have the insight into its services to make them richer and better than those of its competitors: Tencent and Baidu.
• I still struggle with the valuation of Alibaba but it’s moves towards really making the most of the assets it has makes me willing to have another look.