Alibaba's financial report: satisfactory, with urgent need to dispose of non-performing assets and improve losses in overseas operations.

In the context of 2023Q4, upon a detailed breakdown:

Overall Profit Situation:

2. Net interest income and investment gains were 155.16 billion yuan in Q4 2022, while they resulted in a loss of 35 billion yuan in Q4 2023, creating a difference of 190 billion yuan. These two accounting treatments that are less directly related to core operations led to a profit impact of 348 billion yuan (190+158), with actual profit decrease being 324 billion yuan. Excluding these accounting treatments, profits would be positive, including maintaining a decent operating profit even without considering investment gains.

3. Free cash flow decreased by 226.54 billion yuan in a single quarter. Capital expenditures had an impact of roughly 30 billion yuan, while other changes reported in the financial statements were one-time adjustments, although specifics were not provided nor mentioned in the conference call. From a business perspective, these impacts seem to be relatively minor.

Breaking Down Business Dimensions:

(Notably, the free-to-use yet growing platform 1688 suggests consumers' core demand is "good value for money.")

2. Overseas losses were significant, with EBITA losses increasing from approximately 6.45 billion yuan to 31.46 billion yuan. The company attributed this to increased investments in AliExpress' choice and trendyol platforms. Although the results showed an incremental revenue growth of 83 billion yuan, this translated into an additional EBITA loss equivalent to around 1 times the previous loss, resulting in a 3.3-fold increase in revenue. Personally, it seems like a small return on investment; ideally, internet companies should achieve greater revenue growth with minimal investment given their inherently high operating leverage, questioning if the current path is correct.

3. Other businesses continued to record losses, with local services narrowing losses but international business and large-scale entertainment suffering substantial losses. I believe businesses akin to Highsun Retail, Intime Department Store, and Hema should have been divested long ago, as they can be considered toxic assets. For instance, Hema has strategic and tactical flaws and continues to hold onto its operations tightly.

From a comprehensive business perspective, management execution is deemed average, especially concerning the slow pace of dealing with toxic assets. Currently, there are 219,360 employees, about 5,000 fewer than in Q3 2023. However, it's recommended to quickly dispose of toxic assets like Highsun Retail, Intime, and Hema to avoid bloated staffing levels and unnecessary diversion of management's primary focus. Failure to address this issue could lead to persistent disappointment among investors.

Wrapping Up the Financials:

Currently proposed share buybacks amount to approximately USD 120 billion, or repurchase and cancellation representing around 3% of the total. Including dividends, shareholder returns could be around 4.4%. The market's main concern lies in whether Alibaba will follow through with these plans.

In summary, the assessment indicates a stable foundation overall. The timing of valuation uplift depends on several factors, with a higher likelihood of appreciation when more elements come together:

1. Continued growth in Taobao/Tmall;

2. Rapid reduction in loss-making businesses, particularly disposing of underperforming offline retail operations;

3. Turning the tide towards profitability in international operations;

5. Maximizing the completion of the share buyback program.

My personal judgment is that points 1 and 5 have a higher probability of accomplishment, while clarity on points 2 and 3 is currently lacking, and point 4 has a considerable chance, albeit requiring more time.