Alibaba reports slowest ever revenue growth for March quarter on the back of slowing economy amid pandemic lockdowns

E-commerce giant Alibaba Group Holding reported a 9 per cent increase in revenue for the March quarter, the slowest pace on record, on the back of a slowing economy in China amid ongoing pandemic lockdowns.

The Hangzhou-based company, which owns the South China Morning Post, said its revenue reached 204.05 billion yuan (US$32.19 billion) for the quarter, beating the expected 200.6 billion yuan, according to estimates by 34 analysts surveyed by Bloomberg. The increase was primarily driven by revenue growth in domestic commerce, local consumer service and cloud segments.

Alibaba’s cloud business, which the company is betting on as a major new source of revenue and profits, reported a full-year profit of 1.1 billion yuan though, marking the first time that the company has turned a profit from the business.

The net loss widened to 16.24 billion yuan, compared with 5.48 billion yuan a year earlier. This was worse than the average analyst estimate for net income of 10.5 billion yuan. The drop was attributed to equity investments in publicly-traded companies, internal investments in new businesses such as Taocaicai and Taobao Deals, and the continued impact of Covid-19.

Adjusted profit fell 24 per cent year on year to 20 billion yuan during the quarter.

Daniel Zhang Yong, chairman and chief executive of Alibaba, noted that the company “saw a low single-digit decline in revenue growth in April” compared to the same period last year, as the Omicron outbreak dragged business performance.

Zhang added that the situation is improving, although recovery may not happen immediately. “It will take time for all of the outstanding parcels to be delivered, and also for merchants to make preparations for the upcoming 618 [shopping festival] … but we are certainly seeing signs of improvement going into the month of May,” he said.

For the 12 months ended March 31, Alibaba reported a 19 per cent rise in its annual revenue to 853.1 billion yuan, beating analysts’ average estimates of 850.2 billion yuan. Net income for the year fell 59 per cent to 62 billion yuan, worse than the expected 83 billion yuan, according to the financial results.

Alibaba’s share price dropped 1.5 per cent on Thursday, closing at HK$81, ahead of the latest earnings results announcement. The company’s shares are down 31.8 per cent since the start of the year.

Alibaba CEO reassures employees amid economic and regulatory challenges

The results come as China’s internet sector is facing major challenges amid strict pandemic control measures nationwide and a slowing economy.

International consumer brands experienced a significant drop in e-commerce sales in China last month as logistics were disrupted and warehouses remained locked up. At the national level, total retail sales – seen as a barometer of consumer spending – plunged 11.1 per cent in April from a year ago.

Social media and video gaming giant Tencent Holdings reported flat revenue growth for the first quarter last week, with profit dropping 51 per cent year on year.

However, late last month China’s regulators signalled an end to their 18-month long crackdown on the technology sector, although no specific measures have been introduced. Top Chinese Communist Party officials, including Vice-Premier Liu He and No 4 party ranking member Wang Yang, met Big Tech leaders earlier this month to encourage them to play a constructive role in the national economy.

“I think we all know that recently ... Chinese leaders have shared a very clear message to the market that they want the platform economy to play an important role in economic development,” said Zhang in an earnings call with analysts on Thursday.

Toby Xu, chief financial officer, said the company would “focus on cost optimisation and control” for the next few quarters. “For the parts of business that aren’t generating long term value, we’ll find ways to make them more efficient or scale them down with consolidation,” said Xu in the earnings call.

Sales at Alibaba’s China e-commerce business totalled 140.33 billion yuan in the March quarter, up 8 per cent from a year earlier, and providing a 69 per cent contribution to total quarterly revenue. The international e-commerce business rose 7 per cent to 14.34 billion yuan in the quarter, taking up 7 per cent of total revenue.

Cloud services revenue rose 12 per cent to 18.97 billion yuan in the latest quarter, contributing 9 per cent, or the second-largest proportion of the group’s overall revenue in the period. Revenue slowed from growth of 20 per cent in the previous quarter though due to the effects of the pandemic on overall economic activity.

On Wednesday, China unveiled a new round of stimulus measures – a 33-point package of policy items – to stabilise the nation’s faltering economy and support business, but analysts say the actual impact may be limited if the nation’s stringent zero-Covid policy remains unchanged.