Alibaba Q2 Earnings Overview
Alibaba released its Q2 results this morning before the US open. The results were overwhelmingly positive, and management did a good job keeping costs stable year-over-year. Cloud intelligence was a particular bright spot, as the segment’s EBITDA grew over +100% year-over-year (YoY). International digital commerce was also a high point, with revenue up +41% YoY. Meanwhile, Cainiao logistics swung to profitability.
During the call, outgoing CEO Daniel Zhang acknowledged that this was his 30th and final earnings call as group CEO and that he was excited to begin his focused work on the cloud division. He also pointed out that despite weakness in macro data coming out of China, his company’s results speak to a steady consumer rebound in China and that the company’s increased focus on price competitiveness was proving fruitful.
“Our businesses demonstrated encouraging trends that reflect the economy’s resilience, confidence in a consumption recovery, and the significant potential from an integrated development of the digital economy and real economy,” said outgoing CEO Daniel Zhang.
He also said that the company’s six businesses have already begun to operate differently, re-energizing themselves to focus on their individual strengths and challenges.
Analysts’ questions were heavily focused on artificial intelligence (AI) as Daniel noted that they now have over 100 million users of their AI models. He also said that profitability in AI will come down to not only Alibaba’s own chat bots and models, but also cloud customers leveraging the company’s infrastructure to build out and provide their own models.
Non-GAAP (Adjusted)
- Revenue increased +14% YoY to RMB 234 billion versus an estimated RMB 224 billion.
- Net Income increased +15% YoY to RMB 34 billion
- Net Margin 15% versus 13% in Q2 2022
- Earnings per Share RMB 2.22
Key News
Asian equities were mixed overnight on lighter volumes as Mainland China outperformed.
Alibaba’s positive results lifted internet stocks in Hong Kong, and we are seeing a rebound in the US this morning. Nonetheless, Hong Kong’s short sale turnover remained elevated.
Li Auto said that strong deliveries helped reduce costs and improve net profits in Q2. Some analysts now believe the electric vehicle’s Q3 delivery targets are conservative.
The China Securities Regulatory Commission will be holding a meeting with property developers on Friday to help with debt restructuring. This will be important to watch for the real estate space.
China lifted a ban on group tours to 78 countries including the US, UK, India, and Australia. This lifted Trip.com in Hong Kong overnight along with other travel names.
According to a report by the China Securities Journal, consumer prices are likely bottom out after indicating deflation in July and rebound as domestic consumption and overall demand improves.
The Hang Seng and Hang Seng Tech indexes rebounded after starting the session lower and closed slightly higher by +0.01% and 0.10%, respectively, overnight on volume that decreased -5% from yesterday. Mainland investors net bought $226 million worth of Hong Kong stocks overnight via Southbound Stock Connect. Energy was one of the best performers in Hong Kong while real estate continued to lag.
Shanghai, Shenzhen, and the STAR Board bounced around the room to close higher by +0.31%, +0.13%, and +0.19%, respectively, on volume that decreased -6% from yesterday. Meanwhile, we had another day of net selling by foreign investors to the tune of -$331 million via Northbound Stock Connect. Energy and mining names were among the best performing on the Mainland overnight while semiconductors and home appliances were among the worst.
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.21 versus 7.21 yesterday
- CNY per EUR 7.95 versus 7.91 yesterday
- Yield on 1-Day Government Bond 1.35% versus 1.35% yesterday
- Yield on 10-Year Government Bond 2.65% versus 2.65% yesterday
- Yield on 10-Year China Development Bank Bond 2.75% versus 2.75% yesterday
- Copper Price +0.32% overnight
- Steel Price -0.08% overnight
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