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Alibaba Group said on Thursday that its third-quarter revenue rose 10% year-over-year and consumers in its ecosystem swelled to 1.28 billion globally.

Budding businesses, including value-for-money app Taobao Deals and community marketplace business Taocaicai, gathered momentum. Their operating losses are set to shrink in coming months, showing Alibaba’s investment initiatives are bearing fruit.

“Alibaba delivered steady progress this quarter as we continued to execute our multi-engine growth strategy in a complex and volatile market environment,” said Daniel Zhang, Chairman and Chief Executive Officer of Alibaba Group.

The e-commerce giant’s annual active consumers (AACs) inside China climbed to 979 million and outside China to 301 million, quarterly net increases of over 26 million and 16 million, respectively.

Alibaba is on track to hit 1 billion AACs in China by March 31, substantively all the consumers with purchasing power in the world’s second-largest economy. This success will trigger a shift from acquiring new users to retention and boosting average revenue per unit (ARPU).

Alibaba bought back about 10.1 million American depositary shares (ADSs) for roughly $1.4 billion in the third quarter, part of an ongoing stock repurchase program running until the end of this year. Alibaba’s ADS price has dropped 56% in the past year amid a slowdown in economic growth during the coronavirus pandemic, according to stock analysts.

“Our current share price does not fairly reflect the value of the company. At current price levels, we plan on continuing our share repurchases,” said Toby Xu, Alibaba Group’s Deputy Chief Financial Officer.

Among equity analysts, 53 out of 60 have a “buy” rating on the stock and an average 12-month price target of $190, Bloomberg data showed.

Complex & Volatile

E-commerce has flourished in recent years as consumers embraced the convenience and breadth of choice available on mobile apps, especially when the pandemic made shopping in malls a risky prospect. Merchants are also growing reaching a wider customer base via digital platforms and honing their supply chains.  

Online shopping represented roughly a quarter of retail sales in China last year and now can’t escape macroeconomic headwinds buffeting consumer demand, such as sporadic outbreaks of the coronavirus and inflation.  

China’s National Bureau of Statistics reported a slowdown in online sales of physical goods late last year and several equity analysts trimmed their earnings estimates for digital platform companies following the data release.

“Winter is not over yet; Spring will still come but may take longer to arrive,” said JP Morgan analysts in a report last month.

Alibaba’s third-quarter revenue rose 10% year-over-year to RMB242.58 billion ($38.07 billion), 1% below the consensus average of equity analysts’ expectations compiled by Bloomberg.

Customer management revenue, largely from performance-based marketing services on Alibaba’s platforms, fell 1% year on year. The drop was chiefly due to slowing market conditions and competition, as well as incentives for merchants to drive adoption of value-added services and cuts in selected service fees.

A step up in near-term spending builds goodwill with customers and supports long-term growth said Xu on a conference call with analysts.

Alibaba forecast in November that its fiscal year 2022 revenue would grow 20% to 23% year-over-year, demonstrating confidence in its long-term growth plans and China’s economic potential. 

Alibaba’s adjusted earnings before interest, taxes, and amortization (Ebita), which reflects underlying performance, fell 27% year-over-year to RMB44.82 billion, below analysts’ expectations. Adjusted Ebita margin came in at 18% for the quarter, down from 28% a year earlier.

Attracting Users

China commerce businesses recorded about 882 million AACs in the 12 months ended Dec. 31, a quarterly net increase of about 20 million, driven by additions on value-for-money marketplace Taobao Deals. The percentage of new consumers in China’s less-developed areas continued to grow.

“Taobao Deal has been a powerhouse in new user acquisition for China Commerce,” said Zhang.

Online physical goods GMV for marketplaces Taobao and Tmall, excluding unpaid orders, recorded single-digit year-over-year growth in the third quarter, mainly due to slowing market conditions and competition.

Alibaba consolidated the backend process of Taobao and Tmall in January to make its core commerce marketplaces more efficient and enhance service quality to customers.    

By category, apparel & accessories and consumer electronics’ year-over-year growth of physical goods gross merchandise volume (GMV) was below average, while growth in the FMCG and home furnishing categories was faster.

The 11.11 Global Shopping Festival took place during the quarter and posted a record $84.54 billion of GMV. The two-week shopping gala brought together at least 900 million Chinese consumers and 290,000 brands.

Revenue at Alibaba’s cloud business grew 20% year-over-year to RMB19.54 billion, reflecting robust demand from financial and telecoms customers, partially offset by the sustained impact from loss of a major client and slowing capital expenditure by internet customers.

Alibaba Cloud’s revenue is becoming more diversified with revenue contribution from non-internet industries accounting for 52% of revenue for the quarter.

Multiple Apps

Alibaba is moving from a super-app strategy to multiple apps to meet the diverse needs of consumer groups.

Taobao Deals had 280 million AACs in the 12-months ended Dec. 31, up 39 million from the prior quarter. Paid orders on Taobao Deals grew over 100% during the quarter, year-over-year.

Community marketplace Taocaicai continued to penetrate less developed areas in China while generating robust GMV growth of 30% quarter-over-quarter. Taocaicai is driving higher purchases by Alibaba’s AACs of groceries, enhancing purchase frequency and stickiness on the group’s platforms. Taocaicai’s unit economics per order continues to improve.

“As demonstrated by our new segmental disclosure, our continued investments in growth initiatives have seen tangible results,” said Alibaba Group’s Chief Financial Officer Maggie Wu. Alibaba committed to greater transparency into key segments’ performance mid-December.

An influx of users from less developed areas, where Taobao Deals and Taocaicai are active, resulted in a dip in ARPU, or the average annual spend per AAC, last year. However, ARPU of users who spend over RMB10,000 annually on the platform continued to increase year-over-year.

International commerce retail businesses, including Singapore-headquartered e-commerce platform Lazada, AliExpress, Turkey’s Trendyol and South Asia’s Daraz, had about 301 million AACs in the 12 months ended Dec. 31, a quarterly net increase of 16 million. During the quarter, combined order growth of these businesses was around 25% year-over-year. Lazada’s order growth climbed 52% and Trendyol’s jumped 49% in the quarter.

This growth was partially offset by a fall in orders for AliExpress in Europe, due to the value-added tax levied on cross-border parcels below 22 euros in value.

Greener Pastures

Across the ecosystem, Alibaba is shrinking its carbon footprint and working with merchants that can offer sustainable products on its platform.

“We should not compromise between luxury and sustainability,” said Nicolas Gerlier, CEO of French clean beauty brand La Bouche Rouge CEO told Alizila in a recent interview. La Bouche Rouge uses recyclable materials including a brush made of castor plant fibers and is one of the companies that Alibaba is working with on its platform.

Earlier this month, Alibaba said it had allocated proceeds from a $1 billion sustainability bond to support projects ranging from energy-efficient data centers to recycling programs. The company also worked with the International Olympic Committee to make the Olympics Winter Games Beijing 2022 more sustainable and inclusive by making it the first Games on the cloud.

“We believe a clear ESG strategy is instrumental to Alibaba’s future,” said Alibaba’s Zhang.

Alibaba pledged last year to hit carbon neutrality in its operations by 2030 along with a commitment to slash 1.5 gigatons of carbon emissions by 2035 by working with consumers, customers and partners across its ecosystem.

“ESG growth options, which we don’t think are in the price, could drive a sustained re-rating of the stock,” said Morgan Stanley analysts in a report last month.

For more information about Taobao Deals click here To learn about Alibaba’s expansion in China’s lower-tier cities click here