Alibaba sales better than feared despite economic turmoil

HONG KONG (BLOOMBERG) – Alibaba Group Holding posted better results than many investors feared, avoiding a sharp sales contraction while signalling an improvement in Chinese consumer sentiment in recent months.

Its shares rose more than 6 per cent in New York. Alibaba’s revenue slid for the first time on record in the June quarter, albeit by a fractional amount that was less than analysts projected. The contraction marked an official end to a decade of sizzling growth for China’s Internet giants, which began to wind down in 2021 when regulators slapped curbs on a range of sectors from e-commerce to social media.

China’s e-commerce leader reported revenue of 205.6 billion yuan (S$41.9 billion) in the June quarter, enough to beat projections for 204 billion yuan. Net income fell 50 per cent to 22.7 billion yuan, although Alibaba trimmed losses at newer businesses like local services and the cloud.

Alibaba is still grappling with the economic fallout from nationwide Covid-19-related lockdowns and a near-economic contraction in China. Smaller rival, which escaped the worst of the crackdown, is overtaking Alibaba in sales growth, while up-and-coming competitors such as ByteDance and Pinduoduo are drawing more users away.

But consumption began recovering from June and quickened in July, Alibaba chief executive officer Daniel Zhang said. This outlook helped drive gains in Chinese Internet peers from JD to Baidu and Pinduoduo, which are heavily reliant on the health of the domestic consumer.

“Starting in July, we are seeing a gradual recovery of business performance compared with June, especially in the relatively more impacted categories in the past few months such as fashion and electronics,” Mr Zhang told analysts on a conference call.

Alibaba is also managing a series of run-ins with regulators. These range from antitrust fines to tax evasion probes, but have culminated in China’s largest recorded cyber-security breach, which experts linked to Alibaba’s cloud business. That division grew sales by 10 per cent in the quarter, the slowest pace on record.

Abroad, the United States added Alibaba to a growing roster of companies facing removal from US stock exchanges amid Beijing’s refusal to permit American officials to review their auditors’ work. The company is seeking a primary listing in Hong Kong that would enable it to tap more mainland investors, while also maintaining its listing status on the New York Stock Exchange.

Once the most valuable company in China, Alibaba has seen its market value tumble after Beijing launched its sweeping crackdown on the private sector more than a year ago. The government forced Alibaba’s finance affiliate, Ant Group, to call off what would have been the world’s largest initial public offering in 2020, and then launched reforms that have undercut Alibaba’s business model.

Following a ferocious crackdown on the country’s most prominent billionaires, Alibaba co-founder Jack Ma has made significant concessions to appease Beijing. Last week, Ant said in a filing that Mr Ma will cede control over the fintech arm and reduce his Ant shareholding over time to a percentage that does not exceed 8.8 per cent. He currently holds 50.52 per cent of voting rights in Ant.

The move, likely to reduce some of Alibaba’s and Ant’s regulatory headwinds, has weighed on Alibaba shares, on fears that a leadership change could further delay Ant’s initial public offering. Mr Ma’s retreat also raises questions about his Internet empire just as China enters a period of unprecedented uncertainty.

Revenue from Alibaba’s core China commerce division slid 1 per cent during the quarter – the first contraction on record.

In response to slowing growth, Alibaba said in May it will take a “more disciplined” approach to spending and scale back expenses in areas that are not generating long-term value. This shift – in line with Beijing’s incentives – marks a major shift from the aggressive and wide-ranging market share grab that characterised the e-commerce giant in the past.

Adjusted earnings per American depository share of 11.73 yuan beat estimates for 10.33 yuan, reflecting those efforts.