My notes on Alibaba's Q1 2024

The dumpster fire is still burning but things look better

I found Alibaba's Q1 2024 earnings unspectacular, but a few things piqued my interest or at least differed from common perception. Previously, under Daniel Zhang's leadership, the company was an absolute dumpster fire - see my last article on that. This is a picture of my last visit in Hangzhou when Zhang was still the CEO.

Even after the new management took over, they seemed to struggle with that mess. Distributing the cloud business - yes, then no. IPO of Cainiao and Freshippo - yes, then no. However, this is not a complaint about the current management, led by Joseph Tsai. Joseph Tsai is great; I just want to highlight the issues during Daniel Zhang's tenure.

Now, things are looking more coherent and promising. They are finally following Tencent's lead by phasing out low-margin, low-quality revenue streams from the cloud business and focusing on high-margin projects. This strategy paid off for Tencent, and I believe it will benefit Alibaba as well. Management projects double-digit revenue growth for the cloud business in the second half of the year.

Another significant update is their dual listing in Hong Kong in August 2024. This will allow Alibaba shares to be included in the Stock Connect, enabling mainland investors to purchase the shares. For example, mainland investors own 9.3% of Tencent's shares. This could boost Alibaba's share price if the numbers eventually become similar to that of Tencent.

What I find surprising is that nobody is talking about the "other" segment. This segment is larger than their international e-commerce and cloud business combined, yet it is shrinking and incurring increasing losses.

This includes assets accumulated during Daniel Zhang's tenure, like Freshippo, InTime, and SunArt. Even current management has pointed out how much revenue would have grown if not for these acquisitions. I can see them divesting these assets if market conditions improve, which would generate more cash and heavily improve growth numbers.

As a side remark, it's puzzling why Daniel Zhang is running an investment fund given his poor capital allocation decisions as CEO of Alibaba. To paraphrase Wolfgang Pauli, his capital allocation at Alibaba was "not even bad."

Overall, while nothing special happened in Q1 2024, there are good signs. Dual listing in Hong Kong, and the strategic moves by the current management are positive indicators. I think growth will come later this year. Also they bought back 2.6% of shares outstanding only in the first quarter.