Alibaba could see first revenue decline on record but analysts expect sales recovery later this year

Alibaba shares jump 7% after quarterly earnings beat expectations

Alibaba has faced growth challenges amid regulatory tightening on China’s domestic technology sector and a slowdown in the world’s second-largest economy. But analysts think the e-commerce giant’s growth could pick up through the rest of 2022.

Kuang Da | Jiemian News | VCG | Getty Images

Alibaba reported fiscal first-quarter earnings on Thursday that beat expectations, sending shares higher in U.S. pre-market trade.

Shares of the Chinese e-commerce giant in Hong Kong rose more than 4% ahead of the earnings report. Alibaba’s U.S.-listed shares were as much as 7% higher, before paring gains.

Here’s how Alibaba did in its fiscal first quarter, versus Refinitiv consensus estimates: 

  • Revenue: 205.55 billion Chinese yuan ($30.68 billion) vs 203.19 billion yuan expected, remaining flat year-on-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, it is the first time the company posted flat growth in its history.

In the quarter, Alibaba faced a number of headwinds including a resurgence of Covid in China that led to major cities, such as the financial metropolis of Shanghai, being locked down. That led to a sluggish Chinese economy in the second quarter of the year.

However, as cities came out of lockdown in late May and early June, growth started to pick up.

“Following a relatively slow April and May, we saw signs of recovery across our businesses in June,” Daniel Zhang, CEO of Alibaba said in a press release.

Meanwhile, the e-commerce giant continues to face a strict regulatory environment after Beijing’s more than a year-and-a-half crackdown on the domestic technology sector.

While Alibaba had a tough quarter, analysts are expecting growth to pick up in the coming months.

China e-commerce in focus

Revenue from Alibaba’s biggest business, the China commerce division which includes its popular marketplace Taobao, declined 1% year-on-year to 141.93 billion yuan. That was mainly due to a 10% fall in customer management revenue. CMR is revenue Alibaba gets from services such as marketing that the company sells to merchants on its Taobao and Tmall e-commerce platforms.

Alibaba said CMR decreased because the overall sales of online physical goods on its Taobao and Tmall platforms declined “mid-single-digit year-over-year” and there were increased order cancellations due to the impact of the Covid resurgence and “restrictions that resulted in supply chain and logistics disruptions 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 the annual 6.18 shopping festival in China which culminates in June. GMV is a measure of the sales transacted across Alibaba’s platforms but does not directly equate to revenue. The shopping event sees e-commerce players offer massive discounts to customers.

Under its China commerce business, Alibaba has also been trying to expand revenue and users for its discounting platform called Taobao Deals and grocery and fresh food service Taocaicai. The Hangzhou-headquartered company sees these newer businesses as a way to attract less affluent customers in smaller Chinese cities.

Investors have been watching if Alibaba can keep its costs under control while growing these businesses. Alibaba said Taobao Deals “significantly narrowed losses year-over-year as well as quarter-over-quarter driven by optimizing spending in user acquisition as well as improving average spending of active consumers.” The company did not reveal the losses for Taobao Deals.

Alibaba said in the June quarter, Taocaicai GMV grew at more than 200% year-over-year while its losses “increased moderately compared to the same quarter last year.”

Cloud slowdown

While cloud computing is just 9% of Alibaba’s overall 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 the Chinese government’s crackdown on industries such as online education that were using Alibaba’s products.

But Alibaba said the rise in cloud revenue reflects the “recovering growth of overall non-Internet industries, driven by financial services, public services, and telecommunication industries.”

This is breaking news. Please check back for updates.

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