Alibaba Earnings: Strong Beat on Results; Near-Term Choppy Recovery in the Chinese Businesses

Alibaba reported strong June-quarter results, with revenue beating Refinitiv consensus by 4% and adjusted EBITA by 21% in the first quarter under the new organizational structure. Revenue and adjusted EBITA year-on-year growth were 14% and 32%, respectively, for the June quarter, versus 2% and 60% in the March quarter. We see noticeable top line recovery in its China commerce retail, local services, cloud and digital media, and entertainment businesses in the quarter as a result of a low base from lockdown in the same period last year. Nevertheless, we think in the near term the China commerce business will see a choppy recovery due to the recent weak macroeconomic data such as year-on-year deflation and imports decline in July and an absence of major consumption stimulus like cash or voucher handouts so far. We are impressed with the margin improvement efforts in the quarter, which are especially pronounced in the two large loss contributors international digital commerce, or AIDC, and local services businesses. There wasn’t any significant update on the spinout and spinoff of Alibaba’s businesses nor the scale and timing of shareholder capital return after such events.