Source: Company reports/Coresight Research

2Q19 Results

Alibaba reported 2Q19 revenues of ¥85.1billion ($12.4 billion), up 54% year over year, largely driven by its New Retail initiatives, mainly its Hema fresh food grocery business, Tmall Import business and Intime Department Stores. The company’s operating margin continued to be squeezed, at15.9% in the quarter, due to heavy investments in local services, logistics, entertainment and international expansion. Non-GAAP diluted EPS was ¥9.60 ($1.40), up 12% year over year.

Source: Company reports

Core commerce: Core commerce revenues reached ¥72.5 billion ($10.6 billion), up 56% year over year.

• China retail revenues: Alibaba reported China retail revenues of ¥54.2 billion ($7.9 billion), up 37% year over year. The strong growth was largely driven by its New Retail initiatives, mainly its Hema fresh food grocery business, Tmall Import business and Intime Department Stores.The company’s number of annual active consumersreached601 million, reflecting an increase of25 million over the 12-month period ended June30, 2018.
• China wholesale revenues: Revenues for the China wholesale business were up 46% year over year, to ¥5 billion, primarily driven by an increase in the average revenue from paying members on the 1688.com platform.
• International retail revenues: International retail revenues increased by55% year over year, to ¥4.5 billion ($650 million), primarily driven by growth in revenues on the Lazada and AliExpress marketplaces.

Cloud computing: Revenues from the cloud computing business in 2Q19 were ¥5.7 billion ($825 million), up90% year over year. The strong growth was primarily driven by an increase in the number of paying customers and by a shift toward higher-value-added products and services. Digital media and entertainment: This segment reported revenues of ¥5.9 billion ($865 million), up24% year over year.The growth was primarily driven by an increase in subscription revenues from Youku and an increase in revenues from mobile value-added services provided by UCWeb, such as game publishing and mobile search.

New Retail Development

Throughout the quarter, Alibaba made good progress on its New Retail initiatives:

• As of September 30, Alibaba operated 77 Hema Supermarket stores, most of them located in tier 1 and tier 2 cities. Hema stores in operation for more than 1.5 years are seeing more than 60% of total sales generated online.
• Alibaba investee and partner Sun Art is now able to fulfill online orders at more than 350 of its approximately 470 stores, after having connected these stores and their warehouse systems to Taobao’s fresh food and general merchandise delivery channel (Taoxianda). Consumers living within a three-kilometer radius of a connected Sun Art store can purchase groceries for on-demand delivery from the Taobao app.

Outlook

Alibaba revised its FY19 revenue guidance downward to ¥375–¥383 billion, reflecting a 4%–6% adjustment.The downward revision is due to the company’s decision, in light of fluid macroeconomic conditions, to delay in the near term the monetization of its incremental inventory generated from growing users and engagement on its China retail marketplaces.