Alibaba faces growth challenges amid regulatory tightening of China’s domestic technology sector and a slowdown in the world’s second-largest economy. But analysts think the growth of the e-commerce giant could pick up through the rest of 2022.
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Ali Baba reported fiscal first-quarter earnings on Thursday that beat expectations, sending shares higher in US premarket trading.
Shares of the Chinese e-commerce giant rose more than 4% in Hong Kong ahead of the earnings report. US-listed Alibaba shares were up 7% higher, before paring gains.
Here’s how Alibaba did in its first fiscal quarter, compared to Refinitiv consensus estimates:
- Revenue: 205.55 billion Chinese yuan ($30.68 billion) vs. 203.19 billion yuan expected, remaining flat year over year.
- Earnings per American depositary share (ADS): 11.73 Chinese yuan vs. 10.39 yuan expected, down 29% year on year.
- Net income: 22.73 billion yuan vs. 18.72 billion yuan expected.
Despite Alibaba beating estimates, this is the first time the company has posted flat growth in its history.
In the quarter, Alibaba faced several headwinds including a resurgence of Covid in China that left major cities, such as the financial city of Shanghai, on lockdown. That was the reason for his China’s economy sluggish in the second quarter of the year.
However, as cities emerged from the lockdown in late May and early June, growth began to pick up.
“After a relatively slow April and May, we saw signs of recovery across our businesses in June,” said Daniel Zhang, CEO of Alibaba in a press release.
Meanwhile, the e-commerce giant continues to face a tough regulatory environment after more than a year and a half of Beijing’s crackdown on the domestic technology sector.
Although Alibaba had a tough quarter, analysts expect it growth to pick up in the coming months.
Revenue from Alibaba’s biggest business, China’s commerce division which includes its popular Taobao marketplace, fell 1% year-on-year to 141.93 billion yuan. This was mainly due to a 10% drop in customer management revenue. CMR is the revenue Alibaba receives from marketing-like services the company sells to merchants on its Taobao and Tmall e-commerce platforms.
Alibaba said CMR fell as total online sales of physical goods on its Taobao and Tmall platforms declined “mid-single digits year-over-year” and increased order cancellations due to the impact of the Covid resurgence and “restrictions that emerged. in supply chain and logistics disruption in April and most of May.”
In June, Alibaba said it saw a recovery in so-called gross merchandise volume (GMV) thanks to improving logistics and China’s annual 6.18 shopping festival that ends in June. GMV is a measure of the sales made across Alibaba’s platforms but is not directly equivalent to revenue. At the shopping event e-commerce players offer massive discounts to customers.
Under its commerce business in China, Alibaba is trying to expand revenue and users for its discount platform called Taobao Deals and grocery and fresh food service Taocaicai. The Hangzhou-headquartered company sees these new businesses as a way to attract less affluent customers in China’s smaller cities.
Investors are watching to see if Alibaba can keep its costs under control as these businesses grow. Alibaba said Taobao Deals “made a significant narrowing loss year on year as well as quarter over quarter due to the optimization of spending in user acquisition as well as improving the average spending of active consumers.” The company did not disclose the losses to Taobao Deals.
Alibaba said in the June quarter, Taocaicai GMV grew at more than 200% year on year and its losses “increased modestly compared to the same quarter last year.”
Although cloud computing accounts for only 9% of Alibaba’s total revenue, it is seen as an important part of the company’s future growth and profitability.
Alibaba posted cloud computing revenue of 17.68 billion yuan in the June quarter, up 10% year on year. But that was a slowdown from the 12% year-on-year revenue growth seen in the March quarter and the 29% rise seen in the same period last year.
The company’s cloud division has been hurt by the loss of a major customer as well as a Chinese government crackdown on industries such as online education that were using Alibaba products.
But Alibaba said that the rise in cloud revenue reflects “the recovery of the growth of the overall non-Internet industries, driven by financial services, public services, and telecommunications industries.”
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