(Bloomberg) — Alibaba Group Holding Ltd. posted a disappointing 4% rise in revenue, after aggressive promotions and new shopping features failed to drive spending in a patchy Chinese consumer environment.
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The domestic e-commerce leader reported revenue of 243.2 billion yuan ($34 billion) in the June quarter, versus the average projection for about 249.9 billion yuan. Net income fell about 27% to 24.3 billion yuan, reflecting the heavy cost of attracting and retaining shoppers.
The disappointing results will likely unnerve investors hoping for a turnaround. Chief Executive Officer Eddie Wu is spearheading an overhaul at a company that since the big tech crackdown of 2020 has struggled to consistently deliver on growth and innovation. Wu, who replaced Daniel Zhang at the helm about a year ago, is focused on enhancing its twin businesses of commerce and the cloud, while making bets on AI technology for the longer term.
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Investors worry that Alibaba’s drive to win market share back from PDD Holdings Inc. and JD.com Inc. in China will compress margins. In the three years before its report Thursday, the company has posted a loss or decline in net income for the majority of its quarterly results. Last week, PDD founder Colin Huang became China’s richest man, a potent symbol of his company’s ascent at Alibaba’s expense.
The three-way battle shows signs of intensifying. Alibaba and its rivals pulled out the stops during the annual “618” shopping festival, using deep discounts and A-list celebrities to try and move products from cosmetics to cake. Alibaba promised billions in cash rewards and experimented with novel approaches such as a streaming section exclusively for company CEOs.
Compounding its issues is the uncertainty shrouding the world’s No. 2 economy. Data released Thursday showed China’s economy failed to pick up after its worst stretch in five quarters, with an uneven recovery in July held back by consumer spending still lagging industrial activity and investment.
On Wednesday, bigger rival Tencent Holdings Ltd. posted better-than-anticipated earnings but warned that flagging consumption was hitting the giant fintech and cloud division that houses its payments and lending businesses.
Overseas, Alibaba’s Singapore-based Lazada arm is waging a pitched battle with a resurgent Sea Ltd. and even ByteDance Ltd., which recently expanded its footprint in Asia by swallowing Indonesia’s Tokopedia. While Alibaba’s international division remains one of the fastest-growing businesses, analysts say losses there will persist.
To counter the market gloom, Alibaba has stepped up share repurchases — most recently tacking on $25 billion to an already record buyback program for the company.
What Bloomberg Intelligence Says
Alibaba’s fiscal 1Q adjusted Ebita probably fell at a steeper rate than the 5% year-on-year decline recorded in the preceding quarter. This would have been led by wider overseas (AIDC) losses as the firm raised expenditure on advertising and user perks to secure more shoppers outside of China. Increased logistics support to back such expansion likely also offset the lift to Cainiao’s margins from economies of scale, lowering its 1Q profitability from a year earlier. Alibaba’s goal to regain e-commerce market share in China probably reduced Taobao-Tmall’s adjusted Ebita for the second straight quarter and contributed to the firm’s 1Q profit fall.
The lift to Alibaba’s cloud margin, as the revenue contribution from more profitable public cloud services rose, may have offset the profit drag from industry-wide price cuts in 1Q.
– Catherine Lim, analyst
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As with Tencent, the downturn is likely to suppress Alibaba’s once fast-growth cloud business, which hosts computing for corporate clients. After years of driving growth across its businesses, the division has managed only single-digit percentage growth in recent quarters as state-backed rivals such as China Telecom Corp. and the likes of Huawei Technologies Co. stepped up.
In response, the company is aggressively cutting prices — slashing prices by as much as 55% on more than 100 services in March, triggering a round of industry discounting.
Both Alibaba and Tencent have invested in the majority of China’s up-and-coming generative AI startups, fueling a costly battle that could in turn bolster their cloud sales thanks to growing appetite for AI training and inferencing.
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