Alibaba quarterly earnings beat expectation, revenue flat amid weaker consumption, economic headwinds
Alibaba quarterly earnings beat expectation, revenue flat amid weaker consumption, economic headwinds

Alibaba quarterly earnings beat expectation, revenue flat amid weaker consumption, economic headwinds





Chinese e-commerce giant Alibaba Group reported better-than-expected earnings for the June quarter, even as weakened consumption and economic headwinds in China crimped the profitability.

Net income tumbled by 50% in the quarter from a year earlier to 22.74 billion yuan ($3.4 billion) under global accounting standards, better than the 17.8 billion yuan expected by analysts surveyed by Bloomberg.

Sales stagnated at 205.56 billion yuan, compared with 205.74 billion yuan a year ago, but beating consensus estimate of 203.36 billion yuan.

Daniel Zhang Yong, chairman and chief executive of Alibaba, said gross merchandise volumes (GMVs) on Taobao and Tmall experienced a “mid-single-digit percentage decline year-on-year”.

Still, the company “saw signs of recovery since June, as logistics and supply chain situation gradually improved after Covid restrictions eased”, he said.

In a research note on Thursday, analysts at Morgan Stanley said “the results show Alibaba’s potential to drive efficiency, which was underestimated. Mid-single-digit GMV decline is better than feared.”

Alibaba’s results come as China’s economy has been battered by the country’s worst Covid-19 outbreak since the spring of 2020.

Gross domestic product grew only 0.4% on year in the second quarter, the slowest growth since the first quarter of 2020, when the economy shrank by 6.8% due to the impact of the Covid lockdowns. In June this year, total retail sales grew by merely 3.1% from a year earlier.

“Alibaba, like any other company, is a micro cell in the social mechanism,” said Zhang in an earnings call with analysts, when asked about challenges ahead. “We would certainly hope to see China continue to get better, to see social development continue to make progress.”

“We will be seeking a balance between cost optimisation and control on the one hand, while also continuing to make important investments in technology and other core areas to build our capacities,” said Toby Xu, the company’s chief financial officer.

During the quarter, sales at Alibaba’s China commerce business amounted to 141.94 billion yuan, falling slightly from a year earlier, accounting for 69% of the total revenue in the quarter.

International commerce business grew 2% on year to 15.45 billion yuan, making up 7% of the total revenue.

Local consumer services, including location-based services such as on-demand delivery platform, maps app Amap and online travel service Fliggy, increased 5% to 10.63 billion yuan.

Cloud service revenue grew 10% to 17.69 billion yuan, the fastest growth among all of the company’s business segments, contributing 9% of the total revenue.

Still, the increase marked a slowdown from the 20% growth in the December quarter and the 12% growth in the March quarter. This was “a result of multiple factors, including slowing macroeconomic activities, decline in revenue from the top internet customers, softening demand from China’s internet customers, and a delay in parts of our hybrid cloud projects due to the impact of Covid”, said Zhang.