High GMV and 88VIP engagement drove Alibaba’s Q3 growth, but profit pressures highlight a fiercely contested market.

Alibaba’s financial performance in Q3 2024 paints a nuanced picture: strong user engagement and transaction volume growth were tempered by declining profitability and market skepticism.

The 88VIP membership program expanded significantly, reaching 46 million members with double-digit year-on-year (YoY) growth in a single quarter. Gross merchandise volume (GMV) also climbed at a double-digit rate, boosted by higher transaction volumes. Notably, Singles’ Day sales surpassed expectations, delivering what executives described as robust growth.

Overall, group revenue grew by 5% YoY to RMB 234.2 billion (USD 32.8 billion). International commerce led the way with a 29% increase, followed by local services at 14%. However, adjusted EBITA declined by 5% YoY to RMB 32.5 billion (USD 4.6 billion), as investments in core businesses weighed on margins.

While Alibaba’s US shares initially rose by nearly 4% in premarket trading, concerns about profit declines reversed those gains, underscoring persistent market skepticism.

Alibaba’s 88VIP program emerged as a standout in Q3, solidifying its position as China’s largest paid e-commerce membership program. The membership base grew to 46 million users, far outpacing Sam’s Club China, which had only 5 million members as of late 2022. By May 2023, 88VIP counted 36.27 million members, each contributing over RMB 60,000 (USD 8,400) annually in GMV. Alibaba attributed growing retention and repurchase rates to targeted investments in Taotian’s loyalty initiatives.

To broaden access, Taotian eliminated the prerequisite of a 1,000-point Taobao rating and introduced an RMB 8.8 (USD 1.2) monthly pass. During Singles’ Day, 88VIP members accounted for over half of total GMV, underscoring their high engagement. Looking forward, the group plans to further segment users into six tiers and has integrated WeChat Pay, potentially unlocking millions of new daily active users (DAUs).

Despite strong GMV performance, its contribution to customer management revenue (CMR) was muted. Taotian’s revenue grew just 1% YoY to RMB 98.99 billion (USD 13.9 billion), while CMR edged up 2%. Analysts cited declining average transaction values as a challenge, one that Alibaba aims to address through policy updates and enhanced user experiences.

While 88VIP has been a bright spot for Alibaba, competition for high-net-worth consumers has intensified. JD.com introduced steep discounts for JD Plus members during Singles’ Day, while Pinduoduo and Douyin ramped up subsidy campaigns. These moves highlight a fiercely contested market.

Profitability remains a key concern. Adjusted EBITA’s 5% decline in Q3 followed a 1% dip in Q2. Net profit fell 9%, missing expectations, while free cash flow plunged 70% YoY to RMB 13.7 billion (USD 1.9 billion). Escalating marketing expenses—up nearly 30% YoY to RMB 32.5 billion (USD 4.6 billion)—were a significant drag. Subsidies, free returns, and promotions contributed to this surge.

International commerce reported an operating loss of RMB 2.9 billion (USD 406 million), though the loss margin narrowed. Growth in the segment slowed to 29%, down from 58% in Q1. Meanwhile, domestic subsidiaries in local services and entertainment edged closer to breakeven.

Alibaba has been candid about its ongoing efforts to balance growth initiatives with profitability, an equation that remains complex in the face of market pressures. One promising sign is the narrowing gap between GMV and customer management revenue (CMR) growth, which suggests that targeted investments in programs like 88VIP are beginning to yield tangible benefits. This momentum, if sustained, could drive stronger financial returns in the coming quarters.

To amplify revenue streams, Taotian launched a new technical service fee and innovative advertising tools in September. These tools aim to attract higher ad spend from merchants by improving targeting capabilities, potentially contributing more significantly to top-line growth in the near future.

Alibaba’s overseas operations are also undergoing strategic shifts. Platforms such as Lazada have pivoted from aggressive market expansion to prioritizing profitability, a move designed to mitigate risks tied to geopolitical tensions and regulatory uncertainties. This recalibration reflects a growing focus on sustainable growth, as the group works to streamline costs and enhance operational efficiency in international markets.

Domestically, Alibaba’s subsidiaries in local services and cultural entertainment have shown encouraging signs of progress. Losses in these segments have narrowed substantially, putting them on track to achieve breakeven—a critical milestone that underscores the potential of these businesses to complement Alibaba’s broader ecosystem.

In a competitive environment that shows no signs of abating, Alibaba is doubling down on core verticals such as e-commerce and artificial intelligence. Resources are being reallocated from non-essential areas to fuel these high-priority sectors. This strategy, paired with stringent cost-cutting measures, is integral to strengthening the company’s position as rivals escalate their efforts to court high-value consumers.

Looking ahead, Alibaba’s ability to balance growth with profitability will be closely monitored. With high-value users increasingly courted by rivals, and profit pressures mounting, the company faces an uphill battle to maintain its leadership in the evolving e-commerce landscape.

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