How Alibaba Makes Money
Alibaba's core e-commerce segment generates the largest share of total revenue
Alibaba Group Holding Ltd. (BABA) is a holding company legally domiciled in the Cayman Islands but which conducts its e-commerce businesses through its Chinese subsidiaries and variable interest entities (VIEs). Its primary business is to offer a digital marketplace where consumers and merchants can connect and buy and sell from each other. But the company has expanded its operations to include cloud computing, digital media and entertainment, and other business offerings.1 Alibaba operates its business through seven primary segments, led by its giant e-commerce operations.
Chief among its competitors are other established Chinese e-commerce and Internet companies, such as Tencent Holdings Ltd. (0700), as well as global and regional e-commerce companies, such as Amazon.com Inc. (AMZN). Since Alibaba also operates in the cloud-computing business and digital-media and digital-entertainment businesses, it competes with companies specializing in those markets as well.2
KEY TAKEAWAYS
- Alibaba provides digital marketplaces for merchants and consumers.
- Alibaba's largest business is its core e-commerce operations.
- Alibaba aims to be a leader in the development of the infrastructure of commerce.
- Alibaba announced in early December that deputy CFO Toby Xu would succeed Maggie Wu as the company's new CFO, effective April 1, 2022.
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Alibaba's Financials
Alibaba files financial statements with the U.S. Securities and Exchange Commission (SEC) and does so in accordance with generally accepted accounting principles (GAAP). The company follows a reporting schedule where the end of its fiscal year (FY) occurs at the end of March.3
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The company also reports certain non-GAAP financial measures, such as adjusted earnings before interest, taxes, amortization, and depreciation (EBITDA), and adjusted EBITA, which refers to earnings before interest, taxes, and amortization.4 Although Alibaba's reporting currency is the Renminbi, the company provides conversions into U.S. dollars, which are used in this story.5
Alibaba reported financial results in late February for Q3 of its 2022 fiscal year (FY), the three-month period ended Dec. 31, 2021. Net income attributable to ordinary shareholders fell 74.3% year over year (YOY) to $3.2 billion. Revenue, however, rose 9.7% YOY to $38.1 billion. The company's total costs and expenses rose 36.9% YOY, much faster than revenue grew, thus weighing on net income.6 Adjusted EBITA, the profit metric Alibaba uses for its individual business segments, was down 26.8% YOY to $7.0 billion.7
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In its quarterly earnings report the company highlighted the growth in its global annual active consumers, which increased to approximately 1.3 billion. Alibaba also noted that its earnings results were adversely impacted by a goodwill impairment of $3.9 billion related to its digital media and entertainment segment as well as decreases in net gains arising from changes in the fair value of its equity investments.8
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