Trends seen in key line items of the fiscals show:

1. The company shows remarkable discipline in revenue segments: Commerce in China consistently accounts for 70%, the rest of the world accounts for 5%, and revenue from other segments also show similar consistency. Costs in key items show a similar trend as well.

2. What’s important, however, is the massive shift in relevance from “Customer management” (i.e. actual internet commerce) to “Direct Sales”, i.e. the network of physical stores the company is rapidly building out.

3. On the whole, however, earnings per “American Depositary Share” (ADS) has dropped by more than half relative to the prior year.

As per the company, this increase was primarily attributed to:

• the higher proportion of the direct sales businesses, such as Sun Art, which resulted in increased cost of inventory as a percentage of revenue.

• the growth of “Taocaicai” businesses leading to an increase in logistics costs as a percentage of revenue.

The company’s growth in direct sales and “Taocaicai” segments (which represents the bargain-hunting/”value deals” business) are in response to rivals JD.com and Pinduoduo who are dominant players in these segments respectively.

The “Digital Media and Entertainment” segment has traditionally been a mixed bag of sorts. While the “gaming” sub-segment within was considered to be rather promising, it’s “content” sub-segment was typically a cash-burner with little to show for it. Both of these factors have changed in recent times.

Alibaba Pictures ended 2021 with the second-highest grossing movie in the world – “长津湖” also known as “The Battle at Lake Changjin” – which depicted a Chinese military victory over U.S. forces in the Korean War. The film grossed over $902 million worldwide (with the largest contributor, of course, being China itself). Its sequel in 2022 – “长津湖之水门桥” also known as “Water Gate Bridge” – has grossed over $626 million so far this year. The company heralds this as a turning point for this sub-segment.

On the other hand, the company’s gaming sub-segment had also faced pressure during the tech crackdown for reasons that were claimed to be “cultural” in nature by various State organs and unrelated to reining in “tech giants”. This perception witnessed a shift earlier this week with approvals granted to a slew of games, following which the stock rose nearly 15% on the 8th of May.

Given all these facts, would this mean it’s a time to start “buying in”? This question needs a more-nuanced consideration.

Ratio Analysis and Price Trajectories

In a style similar to that in past articles, lets take a look at the price ratios for the company’s ADS from mid-2021 (when the crackdown began) till the beginning of this month.