ALIBABA Group Holding posted a disappointing 4 per cent rise in revenue, after aggressive promotions and new shopping features failed to drive spending in a patchy Chinese consumer environment.
The domestic e-commerce leader reported revenue of 243.2 billion yuan (S$44.8 billion) in the June quarter, versus the average projection for about 249.9 billion yuan. Net income fell about 27 per cent to 24.3 billion yuan, reflecting the heavy cost of attracting and retaining shoppers.
The disappointing results will likely unnerve investors hoping for a turnaround. CEO Eddie Wu is spearheading an overhaul at a company that since the big tech crackdown of 2020 has struggled to consistently deliver on growth and innovation. Wu, who replaced Daniel Zhang at the helm about a year ago, is focused on enhancing its twin businesses of commerce and the cloud, while making bets on artificial intelligence (AI) technology for the longer term.
Investors worry that Alibaba’s drive to win market share back from PDD Holdings and JD.com in China will compress margins. In the three years before its report on Thursday (Aug 15), the company has posted a loss or decline in net income for the majority of its quarterly results. Last week, PDD founder Colin Huang became China’s richest man, a potent symbol of his company’s ascent at Alibaba’s expense.
The three-way battle shows signs of intensifying. Alibaba and its rivals pulled out the stops during the annual “618” shopping festival, using deep discounts and A-list celebrities to try and move products from cosmetics to cake. Alibaba promised billions in cash rewards and experimented with novel approaches such as a streaming section exclusively for company CEOs.
Compounding its issues is the uncertainty shrouding the world’s No 2 economy. Data released on Thursday showed China’s economy failed to pick up after its worst stretch in five quarters, with an uneven recovery in July held back by consumer spending still lagging industrial activity and investment.
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On Wednesday, bigger rival Tencent posted better-than-anticipated earnings but warned that flagging consumption was hitting the giant fintech and cloud division that houses its payments and lending businesses.
Overseas, Alibaba’s Singapore-based Lazada arm is waging a pitched battle with a resurgent Sea Ltd and even ByteDance, which recently expanded its footprint in Asia by swallowing Indonesia’s Tokopedia. While Alibaba’s international division remains one of the fastest-growing businesses, analysts say losses there will persist.
To counter the market gloom, Alibaba has stepped up share repurchases – most recently tacking on US$25 billion to an already record buyback programme for the company.
As with Tencent, the downturn is likely to suppress Alibaba’s once fast-growth cloud business, which hosts computing for corporate clients. After years of driving growth across its businesses, the division has managed only single-digit percentage growth in recent quarters as state-backed rivals such as China Telecom and the likes of Huawei Technologies stepped up.
In response, the company is aggressively cutting prices – slashing prices by as much as 55 per cent on more than 100 services in March, triggering a round of industry discounting.
Both Alibaba and Tencent have invested in the majority of China’s up-and-coming generative AI startups, fuelling a costly battle that could in turn bolster their cloud sales thanks to growing appetite for AI training and inferencing. BLOOMBERG
