Jinwu Financial News | On May 27, Alibaba Health (00241.HK) announced its annual results for the 2024 fiscal year ending March 31, 2024. During the reporting period, it achieved revenue of 27.027 billion yuan, a slight increase of 1.0% year on year, and realized net profit of 883 million yuan, an increase of 64.6% year on year, with a significant increase in profit against the backdrop of flat revenue growth. The number of members of over 77 million and a MAU of up to 300 million have made Ali Health's current earnings report very popular. Driven by the results, Alibaba Health Hong Kong stock surged 10% on the 28th.
As of today, Internet medical companies represented by Ali Health have yet to get rid of the “online drug sales” and “pharmaceutical e-commerce” labels, but as the industry returns to calm and improves at the policy level, Ali Health may have found its own path to health in terms of profit.
Revenue growth is steady, and the market may have some overdrafts
The revenue composition of Ali Health mainly consists of three parts: pharmaceutical self-management, pharmaceutical e-commerce platforms, and healthcare digital services. These three businesses achieved 23.74 billion yuan, 2.33 billion yuan, and 960 million yuan respectively in fiscal year 2024, with year-on-year increases of 0.6%, 4.1%, and 2.6%, respectively.
(Data source: Company financial report)
Judging from the FY24 semi-annual report data, the revenue situation in the second half of the fiscal year was weaker than in the first half of the fiscal year. According to the company's management, due to the high base of growth in the 2023 fiscal year in the context of the pandemic, the growth rate in fiscal year 2024 was relatively stable.
Specifically, pharmaceutical self-management is the business that accounts for the largest share of Alibaba Health's revenue. Basically, it refers to products such as prescription drugs, non-prescription drugs, medical devices, and healthcare products sold by Ali Health on the App and Taotian, which is also the most traditional “internet drug sales.” In the past few years, pharmaceutical self-employment has been the main driving force for Alibaba's revenue growth, which mainly relies on user growth to drive business sales, but this growth rate seems to have slowed in the 2024 fiscal year.
Judging from the reason, the development and operation of Internet medical care over the past ten years has largely divided the market stock, including businesses such as JD Health, Ping An Good Doctor, and Meituan Pharmaceutical. The number of active annual users covered by it has all reached hundreds of millions, and compounded by the rapid growth of online drug buyers during the epidemic, the increase in users has already been overdrafted to a certain extent.
As of the end of March 2024, Alibaba Health's annual active users (consumers who have actually purchased products at least once on the Tmall Health platform in the past 12 months) was 300 million, the same as the same period in 2023; the cumulative number of self-operated store members increased to 77 million, the same as the semi-annual reporting period, an increase of less than 3% compared to FY2023. Against the backdrop of a high base for FY2023, its growth rate was also flat.
The slowdown in revenue was also seen in the pharmaceutical e-commerce platform business, and this trend was already quite obvious during the pandemic. Compared to self-operated businesses, the businesses covered by the Tmall Health Platform are more complex, including merchant services, proxy operations, and project incubation. Furthermore, in fiscal year 2024, Ali Group also injected advertising and marketing business related to health projects into the Tmall Health platform at a price of 13.5 billion yuan. Judging from the revenue growth rate alone, its growth rate has fallen below 10% since FY2021.
From a gross profit perspective, Alibaba Health achieved gross profit of 5.9 billion yuan in fiscal year 2024, an increase of 3.4% over the previous year, which is slightly higher than the company's revenue growth rate. The gross margin was 21.8%, a slight increase from 21.3% in the previous reporting period. According to the financial report, the increase in gross profit is mainly due to the Group's deep cultivation of refined operations and digital upgrading, leading to optimization of operating efficiency and improvement of pricing capabilities.
Fee control reduces costs, and efficiency increases to drive profit growth
It can be seen that in the past fiscal year 2024, Ali Health did not actually achieve any impressive growth rate on the revenue side. Judging from the company's increased profits, Ali Health's refined operation in terms of operating expenses clearly exceeded expectations.
Judging from Ali Health's financial data review, the company's reduction in performance costs and administrative expenses is the main reason driving net profit growth. In terms of performance costs, the company's pharmaceutical self-operated business generated a series of contract amounts of 2.41 billion yuan, including warehousing, logistics, customer, and commission fees, which is a decrease of 490 million yuan or 17% over the same period last year.
In terms of profit margins, the company's profit margin for the 2024 fiscal year reached 3.3%, and the net profit margin after deducting non-net profit reached 5.3%, an increase of 1.3 percentage points and 2.5 percentage points respectively over the previous fiscal year. According to management, it is mainly due to improved bargaining and pricing capabilities and excellent operating efficiency brought about by refined operation, improved operating efficiency driven by platform economies of scale, and reduced cost dilution.
As of the end of March 2024, the amount of cash and cash equivalents in the company's hand was 9.55 billion yuan, down 1.36 billion yuan from the same period last year. Among them, the amount of cash flow from the company's operating activities reached 1.08 billion yuan, a significant increase over 250 million yuan in the same period last year. The reason for the decline in cash on hand was an increase in the amount of cash flow used in financing activities, mainly due to the cash used in the mergers and acquisitions of Ali's advertising business mentioned earlier.
It is worth mentioning that in the profit structure of Ali Health, interest from bank deposits reached 470 million yuan, an increase of 44.4% over the same period last year, which is the most significant increase in the company's revenue stream. In a sense, the company's huge cash on hand is also the reason for the company's significant profit increase in fiscal year 2024.
The “break-up” of internet healthcare
Internet medical companies have experienced exploration of various profit models in their 10-year development process, and have also had a very popular capital focus moment. But at the end of the day, the foundation of the medical industry is “people-oriented” medical resources. In a context where 90% of domestic medical resources are concentrated in public hospitals, it is difficult for Internet medical companies to become the first choice for patients to see a doctor. Their business scope has always hovered around consulting, drug purchases, or even just “issuing prescriptions.”
With the introduction of the two regulatory policies “Internet Diagnosis and Treatment Supervision” and “Measures for the Supervision and Administration of Online Drug Sales” during the epidemic, especially after public medical institutions began to deploy Internet medical care, the original Internet medical companies experienced a breakdown in valuation. From 2021 to 2023, leading online medical platforms such as Alibaba Health, Jingdong Health (06618.HK), and Ping An Good Doctor (01833.HK) all shrunk their Hong Kong stock valuations by nearly 70%-80%.
(data source: wind)
But on the other hand, after the bubble burst, Internet medical companies made a new breakthrough in their main job of “selling drugs.” The company is no longer obsessed with building so-called Internet hospitals and public medical institutions, but instead focuses on refining the operation and refinement of existing businesses, improving the efficiency of the warehousing supply chain of its own pharmaceutical business, and optimizing the service experience. As a result, JD Health and Ali Health have been profitable.
And with the liberalization of online sales of prescription drugs, internet drug sales, which were once criticized as having a single business structure, have begun to have room for imaginable business growth. Looking at the Internet pharmaceutical market alone, the prospects for market segments such as chronic disease management, prescription drugs, and health care products are all worth looking forward to. Meanwhile, with policy support, eligible Internet medical services are gradually being added to the medical insurance payment category, making the future of Internet medical companies worth looking forward to.
Today's Internet medical companies may have long since lost their “childhood” ambitions, but more pragmatic ideas have also made their development path less difficult. In the long run, there is still plenty of room for penetration in internet drug sales, and there is also a range that can be explored in fields such as consultation, chronic disease management, and online+offline medical service matching. After the aura has faded, the investment value of Internet medical companies may gradually become apparent.