An Alibaba sign is seen outside the company's office in Beijing on April 13, 2021. (GREG BAKER / AFP)
HONG KONG – Alibaba Group posted its first-ever flat growth in quarterly revenue on Thursday in the fallout from regulatory headwinds and weakened consumption amid the country’s COVID-hit economy.
The e-commerce giant’s revenue stood at 205.6 billion yuan ($30.7 billion) for the three months ended June, compared with 205.7 billion yuan a year earlier, despite beating market expectations.
Net profit fell to 20.3 billion yuan, representing a 53 percent year-on-year decline. Meanwhile, net income attributable to ordinary shareholders for the quarter was down 50 percent to 22.7 billion yuan.
Linus Yip Sheung-chi, chief strategist at First Shanghai Securities in Hong Kong, said the gloomy economic climate is one of the main causes of the company’s daunting performance
Linus Yip Sheung-chi, chief strategist at First Shanghai Securities in Hong Kong, said the gloomy economic climate is one of the main causes of the company’s daunting performance.
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This is clearly evident in Alibaba’s China commerce sales – the division accounted for nearly 70 percent of the company’s total revenue – which have been hindered as consumers reined back their spending. The segment reported a 1 percent fall in revenue for the quarter ended June, while online physical goods’ gross merchandise value from its popular marketplaces Taobao and Tmall also declined mid-single-digit year-on-year, dragging revenue from marketing and advertisements services down by 10 percent.
“The past months could be the worst for Alibaba as strict pandemic prevention measures in Shanghai and other cities dampened consumption,” said Yip. “The sluggish market conditions, in turn, posed a drag to the company’s core commerce business in the Chinese mainland.”
Ahead of the latest results announcement, Alibaba’s Hong Kong-traded shares gained 5.2 percent to HK$95 on Thursday, suggesting the market may have counted on a business turnaround after a sluggish quarter.
One bright spot is the company’s cloud computing division, which grew 10 percent year-on-year to 17.7 billion yuan. Though this part of the business merely contributes to around 9 percent of total revenue, Yip said it could become a new driving force of its business growth.
In a sign of its cloud business’ advance gaining pace, Alibaba has recently teamed up with electric vehicle maker Xpeng to open a computing center to train software for driverless automobiles, stepping into the rapidly-growing market for new energy cars
In a sign of its cloud business’ advance gaining pace, Alibaba has recently teamed up with electric vehicle maker Xpeng to open a computing center to train software for driverless automobiles, stepping into the rapidly-growing market for new energy cars.
The biggest hurdle faced by Alibaba is still the long-running regulatory pressures from both sides of the world’s two largest economies, which sent shockwaves to investors over the past years. Since its peak in late 2020, Alibaba’s shares have lost roughly two-thirds of their value in both markets.
As the Chinese government tightened its grip on the tech sector, the heavyweight has borne the brunt of regulations involving data security, live streaming, and anti-monopoly. Just last month, Alibaba was fined 2.5 million yuan by China’s antitrust regulator State Administration for Market Regulation for not complying with certain rules on reporting past merger deals.
At the same time, Alibaba is among more than 150 US-listed Chinese companies flagged by the US Securities and Exchange Commission facing risks of being booted out of the US market if they do not meet auditing requirements under the Holding Foreign Companies Accountable Act.
Alibaba’s inclusion on the US delisting watchlist came days after the e-commerce company announced plans to apply for a primary listing in Hong Kong that would make it easier for mainland investors to buy its shares via a link known as Stock Connect.
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Andrew Wong Wai-hong, chairman and chief executive of Anli Securities, said the upgrade to its listing status could generate a substantial capital inflow to its shares in Hong Kong, adding that it would be wise to be prudent when making investment decisions as the regulatory concerns and tensions between China and the US are still a far cry from easing.
“It’s reasonable to believe this marks a bottom for Alibaba’s results and there’ll be a mild growth in its sales and profitability in the months to come,” said Wong. “But the pace will largely depend on the recovery of the overall economy and the ease of regulations.”
On the same day, Alibaba appointed two independent directors – Irene Lee Yun-lien, chairwoman of Hysan Development, and Albert Ng Kong-ping, former chairman of Ernst & Young China – bringing the number of female board members to three. The company’s board currently consists of twelve directors.
“The new appointments demonstrate the company’s commitment to corporate governance excellence and diversity at the board level,” Alibaba said in a statement released before the results were announced.