Masayoshi Son's SoftBank sells all Alibaba shares, shifts to All-in-AI investment, is the opportunit

On Monday, SoftBank Group announced that the company had almost completely sold its shares in Alibaba Group (BABA.US) to focus on investments in the field of artificial intelligence (AI). During the earnings call, SoftBank’s Chief Financial Officer Yoshimitsu Goto confirmed the company’s shift in investment focus from the e-commerce giant Alibaba to the UK chip design company ARM. SoftBank revealed that Alibaba’s share of SoftBank’s net asset value had dropped from 48% in 2020 to nearly zero, while ARM (ARM.US) now accounted for 45%, and Vision Fund accounted for 29%.

According to Nikkei Asia, ARM plans to develop AI chip prototypes in the spring of next year and start mass production in the fall. ARM will establish a new department dedicated to AI chip development, which will eventually become part of SoftBank Group.

After three consecutive years of losses, SoftBank has pledged to invest $5 billion in the AI field and stated that it has already committed to five investments of $1 billion each. SoftBank Group’s UK chip design company ARM has significantly contributed to the growth of the group’s net asset value. Additionally, SoftBank Group reported a net loss of nearly 228 billion yen for the fiscal year ended March 31. Despite this, SoftBank’s net asset value reached $183.6 billion as of March 31, an increase of $48 billion compared to three months earlier, primarily due to investors’ heavy buying of ARM stock.

Since ARM went public in the United States last September, SoftBank still holds 90% of the company’s shares. ARM’s designs are widely used in smartphone chips and increasingly in the AI field. After going through a difficult period, SoftBank is now betting on AI growth. SoftBank CFO Yoshimitsu Goto stated that while the company is on the defensive, it also has the ability to attack.

In recent years, SoftBank’s flagship Vision Fund has suffered significant losses, causing the company to stop making new investments for a period. However, recently SoftBank has resumed actively seeking investment opportunities. SoftBank and its related investment funds invested $3.9 billion in the fiscal year ended March 31 and committed to investing in five more companies, each with an investment of approximately $1 billion. New investments include GreenBox, a joint venture providing automated warehouse services operated by AI.

ARM’s recently released financial report shows that net profit for the three months ended March increased significantly, partly due to increased demand for chips related to AI and data centers. After losing billions of dollars in the previous fiscal year, SoftBank’s Vision Fund turned a profit in the most recent fiscal year. Technology stocks have performed well for most of this year, driven by the market’s enthusiasm for AI and the expectation that the Federal Reserve might cut interest rates later this year.

SoftBank CFO Yoshimitsu Goto stated that SoftBank hopes ARM and other companies invested by SoftBank will create a new AI ecosystem. He also mentioned that SoftBank CEO Masayoshi Son will focus on developing AI business and will not attend the quarterly earnings meetings but may attend the annual shareholders’ meeting in June. In a speech last October, Masayoshi Son emphasized that AI will become much more powerful than all human intelligence within the next decade and warned, “Either leverage AI or be left behind by AI.”

Alibaba’s Latest Financial Report Analysis

On May 14, Alibaba released its financial report for the quarter ending March 2024 and the fiscal year 2024 (the fiscal year runs from April 1, 2023, to March 31, 2024).

For the fiscal year ending March 2024, Alibaba’s revenue was RMB 941.168 billion (USD 130.350 billion), an 8% year-on-year increase. Operating profit was RMB 113.350 billion (USD 15.699 billion), a year-on-year increase of approximately 13%. The year-on-year growth was primarily due to an increase in adjusted EBITA and a decrease in equity incentive expenses, partially offset by an increase in intangible assets and goodwill impairment.

In this fiscal year, the impairment of intangible assets was mainly related to Sun Art Retail, while the impairment of goodwill was mainly related to Youku. Excluding equity incentive expenses, impairment of intangible assets and goodwill, and other items, adjusted EBITA (a non-GAAP financial measure) increased by 12% year-on-year to RMB 165.028 billion (USD 22.856 billion).

Net profit attributable to ordinary shareholders was RMB 79.741 billion (USD 11.044 billion). Net profit was RMB 71.332 billion (USD 9.879 billion), an increase of 9% year-on-year, primarily due to an increase in operating profit, partially offset by an increase in net loss from changes in the market value of our equity investments.

Excluding equity incentive expenses, gains (losses) from investments, impairment of intangible assets and goodwill, and other items, non-GAAP net profit for fiscal year 2024 was RMB 157.479 billion (USD 21.811 billion), an 11% increase compared to RMB 141.379 billion in fiscal year 2023.

Net cash flow generated from operating activities was RMB 182.593 billion (USD 25.289 billion), down 9% from RMB 199.752 billion in 2023. Free cash flow (a non-GAAP financial liquidity measure) was RMB 156.210 billion (USD 21.635 billion), down 9% from RMB 171.663 billion in 2023. The year-on-year decrease mainly reflects the special dividend of RMB 14.464 billion received from Ant Group in fiscal year 2023 and changes in working capital, partially offset by the year-on-year increase in adjusted EBITA.

Alibaba’s operating costs for fiscal year 2024 were RMB 586,323 million (USD 81,205 million), accounting for 62% of revenue, compared to RMB 549,695 million in fiscal year 2023, accounting for 63% of revenue.

Product development expenses for fiscal year 2024 were RMB 52,256 million (USD 7,237 million), accounting for 6% of revenue, compared to RMB 56,744 million in fiscal year 2023, accounting for 7% of revenue.

Sales and marketing expenses for fiscal year 2024 were RMB 115,141 million (USD 15,947 million), accounting for 12% of revenue, compared to RMB 103,496 million in fiscal year 2023, accounting for 12% of revenue.

General and administrative expenses were RMB 41,985 million (USD 5,815 million), accounting for 5% of revenue, compared to RMB 42,183 million in fiscal year 2023, accounting for 5% of revenue.

Equity incentive expenses for fiscal year 2024 included in the above costs and expenses were RMB 18,546 million (USD 2,569 million), compared to RMB 30,831 million in fiscal year 2023. Equity incentive expenses as a percentage of revenue decreased from 4% in fiscal year 2023 to 2% in fiscal year 2024.

Performance of Each Business Group: Alibaba International Digital Commerce Group, Local Life Group, Digital Media and Entertainment Group, and Others Remain in Loss

Since the quarter ended June 30, 2023, Alibaba has adopted a new organizational structure that includes six major business groups and other business units.

1. Taotian Group’s China retail commerce revenue for fiscal year 2024 was RMB 414,414 million (USD 57,396 million), a 5% increase from RMB 395,352 million in fiscal year 2023, indicating the significant revenue dominance of Taotian Group.

Customer management revenue increased by 4% year-on-year, mainly due to healthy year-on-year growth in online GMV (excluding unpaid orders).

Direct and other revenue from China retail commerce for fiscal year 2024 was RMB 110,405 million (USD 15,291 million), a 6% increase from RMB 103,811 million in fiscal year 2023, mainly driven by strong revenue in consumer electronics and appliances.

China wholesale commerce revenue for Taotian Group for fiscal year 2024 was RMB 20,479 million (USD 2,836 million), a 15% increase from RMB 17,854 million in fiscal year 2023, mainly due to an increase in value-added service revenue provided to paying members.

Adjusted EBITA for Taotian Group for fiscal year 2024 was RMB 194,827 million (USD 26,983 million), a 3% increase from RMB 189,140 million in fiscal year 2023. The growth was mainly due to an increase in customer management services revenue and a narrowing of losses in certain businesses, partially offset by increased investments in user experience and technology infrastructure.

2. Cloud Intelligence Group’s revenue for fiscal year 2024 was RMB 106,374 million (USD 14,733 million), a 3% increase from RMB 103,497 million in fiscal year 2023. The year-on-year revenue growth was mainly driven by Alibaba consolidated business.

As the group gradually reduces project-based contract revenue with lower profit margins, total revenue (excluding revenue from Alibaba consolidated subsidiaries) slightly decreased year-on-year. Strong revenue growth from public cloud and AI-related products is expected to offset the decline in project-based contract revenue.

Adjusted EBITA for Cloud Intelligence Group for fiscal year 2024 was RMB 6,121 million (USD 848 million), a 49% increase from RMB 4,101 million in fiscal year 2023, mainly due to product mix improvement and operational efficiency enhancement resulting from the focus on public cloud.

3. Alibaba International Digital Commerce Group’s international retail commerce revenue for fiscal year 2024 was RMB 81,654 million (USD 11,309 million), a 60% increase from RMB 50,933 million in fiscal year 2023—rapid growth, although my peers abroad are also growing rapidly, some even more so.

The growth was mainly due to strong order growth from AIDC retail commerce, revenue contribution from AliExpress Choice, and improved monetization rates.

International wholesale commerce revenue for Alibaba International Digital Commerce Group for fiscal year 2024 was RMB 20,944 million (USD 2,901 million), a 7% increase from RMB 19,573 million in fiscal year 2023. The growth was mainly driven by increased value-added service revenue related to cross-border business.

Adjusted EBITA for Alibaba International Digital Commerce Group for fiscal year 2024 was a loss of RMB 8,035 million (USD 1,113 million), compared to a loss of RMB 4,944 million in fiscal year 2023.

The increased loss was mainly due to increased investment in businesses including AliExpress Choice, Trendyol’s cross-border business, and Miravia, partially offset by improved monetization rates.

4. Cainiao Group’s revenue for fiscal year 2024 was RMB 99,020 million (USD 13,714 million), a 28% increase from RMB 77,512 million in fiscal year 2023, mainly driven by revenue growth from cross-border logistics fulfillment services.

Adjusted EBITA for Cainiao Group for fiscal year 2024 was a profit of RMB 1,402 million (USD 194 million), compared to a loss of RMB 391 million in fiscal year 2023. The year-on-year growth was mainly due to improved operating performance in cross-border logistics fulfillment services and domestic logistics business, partially offset by retention incentives granted to Cainiao employees following the withdrawal of the initial public offering.

5. Local Life Group’s revenue for fiscal year 2024 was RMB 59,802 million (USD 8,282 million), a 19% increase from RMB 50,249 million in fiscal year 2023, mainly due to order growth from Ele.me and Amap businesses.

Adjusted EBITA for Local Life Group for fiscal year 2024 was a loss of RMB 9,812 million (USD 1,359 million), compared to a loss of RMB 13,148 million in fiscal year 2023, mainly due to improved unit economics and scale expansion of Ele.me, resulting in a continued narrowing of losses in the “To Home” business.

6. Digital Media and Entertainment Group’s revenue for fiscal year 2024 was RMB 21,145 million (USD 2,929 million), a 15% increase from RMB 18,444 million in fiscal year 2023, mainly driven by strong revenue growth from Alibaba Pictures’ offline entertainment business.

Adjusted EBITA for Digital Media and Entertainment Group for fiscal year 2024 was a loss of RMB 1,539 million (USD 213 million), compared to a loss of RMB 2,789 million in fiscal year 2023. The narrowed loss was mainly due to improved profitability of Alibaba Pictures.

7. All other revenue for fiscal year 2024 was RMB 192,331 million (USD 26,637 million), a 2% decrease from RMB 197,115 million in fiscal year 2023, mainly due to a decline in revenue from Sun Art Retail, partially offset by revenue growth from Freshippo. The decline in revenue from Sun Art Retail was mainly due to a reduction in the scale of the supply chain business and a decrease in customer unit price.

Adjusted EBITA for all other segments for fiscal year 2024 was a loss of RMB 9,160 million (USD 1,268 million), compared to a loss of RMB 9,388 million in fiscal year 2023.

With Alibaba’s organizational changes, the total number of Alibaba employees as of the end of March 2024 was 204,900, a reduction of more than 14,000 from the previous quarter, and a total reduction of about 30,000 employees.

Final Words

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