(Bloomberg) – Alibaba Group Holding Ltd. reported a surprise loss after quarterly revenue barely rose as China’s rigid Covid controls continue to depress consumer sentiment.
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China’s e-commerce leader reported a net loss of 20.6 billion yuan ($2.9 billion) against forecasts of a profit of almost the same amount, after writing down the value of investments in a portfolio that spans from Didi Global Inc. to GoTo in Indonesia. Its shares fell 3% in early trading in New York.
Alibaba is focused on strengthening its bottom line as Covid policies and antitrust measures imposed during last year’s tech sector crackdown undermine growth. This month, the company did not disclose full sales results for its Singles’ Day shopping festival for the first time in 14 years, suggesting a disappointing turnout for its biggest annual event. And Chinese retail sales contracted 0.5% in October – the first decline since May and worse than expectations for slight growth.
Leaders on Thursday sounded an optimistic note about an easing — or even a possible end — of pandemic restrictions that have hampered logistics, dampened retail activity and otherwise wreaked havoc on the world’s second-largest economy.
“With the introduction of the 20-point pandemic measures by state authorities, this can be expected to have a positive impact. We certainly still note logistics disruptions in some parts of the country,” chief executive Daniel Zhang told analysts on a post-earnings conference call. “But overall we expect things to continue to improve in a positive direction.”
What Bloomberg Intelligence says
We believe Alibaba’s stronger-than-expected Chinese commerce and cloud profitability in fiscal 2Q increases the likelihood that the company could beat consensus for 29% adjusted Ebita growth this fiscal year. , even if revenue increases are insufficient in both companies. The firm’s international business unit could become profitable in fiscal 2024 if gains persist in Lazada’s monetization rate, which has cut losses by two-thirds from a year earlier. .
-Catherine Lim and Trini Tan, analysts
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Revenue rose slightly less than expected 3% to 207.2 billion yuan ($29 billion) in the September quarter, after cloud sales – once the company’s main driver – recorded their slowest growth rate on record.
Still, investors are pointing to signs that Xi Jinping’s administration is pulling back from its Covid Zero framework — easing logistical entanglements that have plagued Alibaba’s business — and increasingly supporting tech companies. The company also greenlighted a significant $15 billion expansion of an existing $25 billion buyout program and extended it through 2025.
Chinese tech stocks recouped some of their losses this month, after the Communist Party began to pull out of its pandemic playbook and offered President Joe Biden’s administration more incentives to work together. Xi’s shift on those fronts, coupled with the perception of renewed interest in reviving the world’s second-largest economy, is raising speculation that Beijing will begin to unleash the private sector.
“We believe that Covid will eventually pass, our society, our economy and our lives will eventually return to normal, and China’s massive potential as the world’s second-largest economy will be further unleashed,” Zhang said.
Once China’s most valuable company, Alibaba has lost an estimated $600 billion in market value since Beijing launched its sweeping crackdown on the private sector nearly two years ago. The government forced its financial subsidiary, Ant Group Co., to cancel what would have been the world’s largest initial public offering in 2020, then launched reforms that undermined Alibaba’s business model. The fintech giant’s profits fell 63% in the June quarter.
Cost optimization — especially in relatively young grocery stores and overseas businesses — is likely boosting Alibaba’s margins for now. Excluding writedowns, Alibaba posted adjusted earnings, which exclude one-time items, ahead of analysts’ projections.
But in the longer term, it still has to find a response to increasingly effective competition.
While Alibaba said its Singles Day sales were in line with last year’s performance, JD.com Inc. overtook its biggest rival in sales growth and broke another record at the shopping “11.11”. JD has largely escaped the worst of the industry crackdown in 2021.
Up-and-coming rivals, including short-form video platforms, attract users. The number of traders who participated in Singles’ Day events between October 31 and November 11 on Douyin, the Chinese version of TikTok, increased by around 86% compared to the previous year. The number of buyers on Kuaishou increased by about 40% year-over-year during the same event, Jefferies estimates.
Faced with stagnation at home, Alibaba has reignited an outward expansion that has slowed in recent years amid competition from Amazon.com Inc. and Sea Ltd, backed by Tencent Holdings Ltd.
The Lazada Group subsidiary is preparing its first foray into Europe, building on its success in Southeast Asia. But the US market remains relatively less hospitable.
Washington has added Alibaba to a growing list of companies threatened with withdrawal from US stock exchanges due to a long-running audit dispute between the two countries. Although U.S. audit officials completed their first round of on-site inspections of Chinese companies, including Alibaba, this month, it is still unclear whether Chinese companies will pass the rally.
The company is seeking a primary listing in Hong Kong that would allow it to attract more investors from the mainland, while maintaining its listed status on the New York Stock Exchange. On Thursday, Alibaba said the planned conversion of its Hong Kong listing will not be completed by the end of 2022 as planned, due to the need to comply with new local regulatory changes.
–With help from Zheping Huang, Sarah Zheng, Lisa Du and Jennifer Ryan.
(Updates with fourth paragraph executive comments)
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