Chinese e-commerce giant Alibaba Group Holding Ltd. (BABA, 9988.HK, referred to as: Alibaba) reported weak revenue growth in the October-December quarter of last year, highlighting the Chinese government’s strict epidemic prevention and control measures. measures and the impact of competitive pressure on its financial position.
Chief Executive Daniel Zhang said on a conference call with analysts that he expects 2023 to be a year for the company to make progress. Alibaba is also coming out of the haze of regulatory rectification in the past two years.
Alibaba said on Thursday that its quarterly revenue was equivalent to $35.9 billion, up 2% from a year earlier and down from a 3% increase in the previous quarter.
Net income attributable to common stockholders was equivalent to $6.8 billion, up 69% year-over-year. Alibaba’s net profit in the year-earlier period was hit in part by an impairment of goodwill related to its digital media and entertainment unit.
Revenue for the quarter was largely in line with expectations, while net profit was higher than analysts had expected. Shares of Alibaba closed slightly lower in New York on Thursday.
Widespread lockdowns and other anti-epidemic restrictions dampened consumer spending late last year. The Chinese government rolled back the dynamic zeroing policy in December, when infections surged across the country, impacting business activity.
According to the National Bureau of Statistics, in December last year, China’s total retail sales of consumer goods fell by 1.8% year-on-year.
China’s economy is expected to grow by 3% in 2022, and some economists expect a consumption-led recovery this year. But other economists said the rebound in spending may be slow.
Zhang Yong said on a conference call with analysts that he expects consumer confidence and economic activity to recover this year.
Zhang Yong said that although different businesses in Alibaba’s complex ecosystem face different situations, the company always firmly believes in the three main tracks of strategic choice, namely consumption, cloud computing, and globalization.
In the fiscal quarter that ended in December, Alibaba stepped up efforts to cut costs in loss-making businesses. The number of employees fell by more than 4,000 during the quarter. Last year, Alibaba cut a total of 7.5% of its employees.
Chief Financial Officer Toby Xu said Alibaba will increase investment in major businesses in 2023 while continuing to improve operational efficiency.
Alibaba repurchased $3.3 billion worth of shares in the quarter ended December. Xu Hong said that according to the existing stock repurchase plan, the company still has a repurchase quota of 21 billion US dollars, which will not be expanded at present.
More recently, regulatory pressure on Alibaba and its affiliate Ant Group Co. has eased. In January, Alibaba co-founder Jack Ma relinquished control of Ant Group, which the People’s Bank of China said had completed a business overhaul, capping a turbulent period for the fintech giant.
But China still maintains strict regulations on technology companies. More recently, entities with Chinese government backing acquired a stake in an Alibaba subsidiary.
Alibaba’s main domestic e-commerce business is facing competition from peers, putting the company under pressure. Rivals JD.com Inc. (JD.com Inc., 9618.HK, JD, or JD.com) and PDD Holdings Inc. (PDD )’s Pinduoduo continue to eat away at Alibaba’s market share. Short-video platforms such as Kuaishou Technology (1024.HK ) and Bytedance Ltd.’s Douyin are also increasingly posing a challenge.
E-commerce sales of physical goods in China rose 12.9% in the fourth quarter from a year earlier, according to calculations by The Wall Street Journal based on government data.
Alibaba’s commission and advertising revenue from merchants fell 9 percent from 7 percent in the previous quarter, roughly in line with analysts’ expectations. This is also the key performance indicator for Alibaba’s core domestic e-commerce business. Alibaba said the decrease was due to lower sales on its flagship platforms Taobao and Tmall.
As of the December quarter, Alibaba’s international commerce revenue grew 18%. Zhang Yong reiterated that the key markets of Alibaba’s global e-commerce business are Southeast Asia and Europe. Its subsidiary Lazada is going head-to-head with Sea Ltd.’s Shopee in Southeast Asia. Its international shopping site AliExpress faces competition from fast fashion giant Shein and Pinduoduo’s six-month-old U.S. subsidiary Temu.
Growth momentum in Alibaba’s cloud business has slowed as customers tighten budgets.
At the end of last year, in addition to being the CEO of Alibaba, Zhang Yong also served as the president of Alibaba Cloud (Alibaba Cloud) Intelligence, showing the company’s emphasis on the cloud business.
The explosion of ChatGPT has ignited the enthusiasm of Chinese technology companies to enter the generative AI, and Alibaba is also internally testing a large-scale language model similar to ChatGPT.
Zhang Yong said in this conference call that Alibaba has the conditions to provide the required computing power for the large language model. He said that Alibaba must seize and take advantage of this crucial historic opportunity.
The revenue announced in Alibaba’s quarterly report was 247.8 billion yuan, and the net profit attributable to ordinary shareholders was 46.8 billion yuan. All conversions of Renminbi to U.S. dollars in the quarterly report are based on the exchange rate of approximately RMB 6.9 to U.S. dollar.
According to the “Wall Street Journal” based on Alibaba’s performance calculations, Ant Group achieved a net profit of approximately RMB 3.05 billion in the quarter ended September 30 last year, a year-on-year decline of 83%. That’s faster than the 63% year-over-year decline in net income for the quarter ended June 30. Alibaba owns one-third of Ant Group’s shares, and Alibaba’s financial report is delayed by one quarter to include the profit and loss share from Ant Group.
The information disclosed by Alibaba shows that the decline in Ant Group’s profit is mainly due to the decline in the valuation of certain overseas equity investments caused by changes in capital market conditions.