Alibaba net income plummets 87%, with first adjusted profit decline in more than five years

>>> THE WIRE - Walk You Through Every Trading Day

Chinese e-commerce giant Alibaba Group reported an 87% year-on-year decline in net income for the September quarter, missing expectations as the company increased investment in its young business.

Net income fell to 3.4 billion yuan ($524 million) in the quarter, compared with 26.5 billion yuan a year earlier and worse than analysts’ estimates of 24 billion yuan in net income.

Alibaba attributed the decline to heavy investment in its new bargain marketplace Taobao Deals, local consumer services, Taocaicai, used for local community group buying, and Lazada, the Singapore-based e-commerce platform Alibaba acquired in 2016. It also includes losses from investments in publicly-traded companies.

Adjusted profit fell to 28.52 billion for the quarter, down 39% year over year, marking the first decline in 22 quarters. Revenue fell to 200.7 billion yuan for the quarter, missing the expected 207.4 billion yuan, according to estimates by 35 analysts compiled by Bloomberg.

Alibaba said the year-on-year growth of its gross merchandise value (GMV) also slowed to single digit due to a market slowdown and rising competitions due to more e-commerce platforms. “I think our performance to some extent will reflect the overall market conditions,” Alibaba CEO Daniel Zhang Yong said.

Zhang suggested the company would continue to prioritise the growth of its new businesses.

“Our priority for Taobao Deals and Taocaicai is still to build the right infrastructure, in terms of the manufacturers-to-consumers model in Taobao Deals, as well as a hyperlocal community marketplace infrastructure,” he said. “So I think these are our priorities.”

Alibaba’s share price dropped 5.3 per cent, closing at HK$156 ($20) in Hong Kong on Thursday before the latest quarterly results were announced.

The results reflect an increasingly competitive e-commerce industry in China as Alibaba has been forced to defend its turf from rising stars like Pinduoduo. Short video platforms like Kuaishou and Douyin, the Chinese version of TikTok, have been taking a larger share of pie, as well, amid a booming live-streaming e-commerce industry.

Alibaba’s Singles’ Day, the world’s biggest online shopping festival, recorded slower sales growth this year, with a focus on sustainability rather than sales volumes.

Alibaba has long used Singles’ Day to showcase its sales and marketing prowess. For years, the company invited global stars like Taylor Swift and Mariah Carey to appear live on stage to sustain the excitement during the 24 hours of deals on various online shopping sites.

Alibaba has also been forced to contend with a broad crackdown on the tech sector this year that has seen multiple industry giants fined and investigated. Alibaba was fined US$2.8 billion earlier this year for “abusing its market position”.

The government has also tightened rules on the collection and use of consumer data, and it has pushed for more interoperability among competing platforms. Zhang said the company has so far seen no material impact from the Personal Information Protection Law, which went into effect this month.

However, he acknowledged that sharing Taobao links on other platforms is not a smooth experience.

“Today if you are Taobao user, you may have experienced that when you want to share some product links with your friends on social platforms, the experience actually is bad,” Zhang said. “So I think this is for our mutual customers’ benefit to improve the experience when they try to do whatever they want across ecosystems, and we have already made necessary preparations for future interconnectivity.“

One bright spot for Alibaba is its cloud computing division, the country’s largest cloud service provider that competes with Amazon and Microsoft, which grew 33 per cent year-on-year to 20 billion yuan. Alibaba said this year was the first time the Singles’ Day event was entirely run on the cloud.

Late last year, Chinese regulators pulled the plug on a planned initial public offering of Ant Group in Shanghai and Hong Kong, less than 48 hours before the highly anticipated start of trading. Alibaba owns about one-third of the internet finance company, which has been ordered to restructure by the regulators.=

Alibaba was fined US$2.8 billion in April for abusing its dominant market position, and subsequently has had to stop demanding exclusivity from its vendors. Chinese regulators have also been pressing big tech companies to open up their “walled gardens”, the term used for their closed ecosystems in which all operations are controlled by the tech giant.

Alibaba’s net income dropped 8 per cent year-on-year in the June quarter, while it reported the first quarterly net loss in nine years after the antitrust fine in the March quarter.