Alibaba outlook disappoints after China slowdown hurt sales

HONG KONG (BLOOMBERG) – Alibaba Group Holding slashed its outlook for fiscal 2022 revenue after intensifying competition and dwindling consumer spending depressed growth at China’s top e-commerce firm.

The disappointing forecast followed sales that missed analyst estimates for a second straight quarter. Alibaba posted a less-than-expected 29 per cent rise in revenue for the September quarter to 200.7 billion yuan (S$42.6 billion). It forecast 20 per cent to 23 per cent growth in fiscal 2022 revenue, short of the 27 per cent that analysts were projecting. Net income plummeted 81 per cent to 5.4 billion yuan, lagging estimates after the Internet giant marked down the value of equity investments.

On Thursday (Nov 18), executives fielded a barrage of questions from analysts concerned about the longer-term picture for growth and Alibaba’s efforts to fend off rivals. The lacklustre numbers underscored the former stock market darling’s struggle to revive businesses walloped by macroeconomic and regulatory turmoil. Alibaba’s American Depositary Receipts fell 11 per cent in New York, the most in almost 11 months.

The results missed already lowered consensus by 3.2 per cent, Citigroup analysts wrote in a quick note. “More alarmingly, FY2022 full year revenue guidance was revised to only grow at 20 per cent to 23 per cent.”

Chief executive Daniel Zhang said Alibaba will share its outlook in greater detail during an annual investor forum starting Dec 16.

Revenue growth at a plethora of divisions including its Cainiao logistics arm and local on-demand services underperformed expectations, while bread-and-butter customer management revenue from platforms like Taobao and Tmall grew just 3 per cent – the slowest in at least five quarters.

Competition is intensifying just as China grapples with the widest Covid-19 outbreak since the coronavirus first emerged in Wuhan. Rivals like and Pinduoduo are stepping up investments to win over Alibaba’s users, just as a resurgence in virus cases dents consumer spending. Gross domestic product expanded 4.9 per cent in the September quarter, cooling from the 7.9 per cent growth in the previous period, partly because of lockdown measures across many cities.

“Looking ahead, we will continue to invest heavily into three growth engines of domestic consumption, globalisation, cloud computing and data intelligence,” Mr Zhang told analysts on the call.

Pinduoduo this year surpassed Alibaba as the largest Chinese e-commerce platform by annual active shoppers, reaching 849.9 million users in the 12 months to June. Meanwhile, has been attracting new and returning brands like Starbucks and Estee Lauder to its platforms, taking advantage of Beijing’s edict to end exclusivity arrangements previously imposed upon merchants.

Executives said they will continue to build features to round out their platforms and retain consumers. The company reported 953 million annual active buyers in China over the past 12 months and said it is on track to hit a billion before the end of the fiscal year.

The cloud division, the second-largest revenue contributor, was another bright spot in the quarter. The firm last month unveiled a new server chip built with 5-nanometer technology, one of the most advanced in the country.

Sales at that unit grew 33 per cent during the quarter, accelerating from previous periods thanks to investments in technology, Mr Zhang said. The division had been struggling to recover after losing a major customer, which Bloomberg News has reported was ByteDance’s TikTok service.

Delivery workers sort packages on a street a day after “Singles’ Day”, the biggest shopping day of the year, in Beijing on Nov 12, 2021. PHOTO: AFP

The slowdown at Alibaba looked set to extend into a December quarter that included Singles’ Day, the year’s biggest shopping festival. Alibaba last week reported sales of US$84.5 billion (S$114.7 billion) during the blockbuster event, reaching yet another record. But the 8.5 per cent increase was a stark slowdown from previous years, as the company eschewed high-profile promotions to focus on sustainability and philanthropy – key pillars of Chinese President Xi Jinping’s drive to achieve “common prosperity”.

Alibaba’s sales fell short of expectations for the first time in more than two years during the June quarter, battered by an antitrust probe that ended in a record US$2.8 billion fine. Since Beijing kicked off its tech crackdown a year ago, the campaign has grown to encompass areas from fintech to data privacy, online advertising as well as content – arenas Alibaba depends on to drive growth beyond its core business.

Beijing’s vision for breaking up so-called walled gardens by its tech giants may benefit Alibaba in the long run. Fellow behemoth Tencent has pledged to make it easier for users to share external links, including those to Alibaba’s platforms, on its WeChat super-app. On Thursday, Mr Zhang repeated that Alibaba welcomed more openness in the Internet sphere.