Alibaba net income halves, revenue flat in June quarter as weaker consumption, economic headwinds hit China
- The Chinese e-commerce giant says net income fell 50 per cent to 22.74 billion yuan, better than the expected 17.8 billion yuan
- Revenues came in at 205.56 billion yuan, flat from the same period a year earlier, beating Bloomberg’s consensus estimates
Alibaba Group Holding reported better-than-expected earnings for the June quarter, even as weakened consumption and economic headwinds in China crimped the profitability of the world’s largest e-commerce retailer.
Net income fell 50 per cent year-on-year to 22.74 billion yuan (US$3.4 billion) under global accounting standards, the Hangzhou-based company said, better than the 17.8 billion yuan expected by 17 analysts surveyed by Bloomberg.
Sales stagnated at 205.56 billion yuan, compared with 205.74 billion yuan a year ago, beating Bloomberg’s consensus estimate of 203.36 billion yuan.
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Daniel Zhang Yong, chairman and chief executive of Alibaba, said gross merchandise volumes (GMVs) – a measure of transactions of goods – on Taobao and Tmall experienced a “mid-single-digit percentage decline year-on-year”.
Still, the company “saw signs of recovery since June, as logistics and supply chain situation gradually improved after Covid restrictions eased”, Zhang said.
In a research note on Thursday, analysts at Morgan Stanley said “the results show Alibaba’s potential to drive efficiency, which was underestimated. Mid-single-digit GMV decline is better than feared.”
Alibaba’s results come as China’s economy has been battered by the country’s worst Covid-19 outbreak since the spring of 2020.
The declining growth has been reflected in the earning results of other Big Tech firms in China. Tencent Holdings reported nearly no revenue growth for the first quarter, with profits dropping by more than half from a year earlier. The company is due to report its second quarter results on August 17.
“Alibaba, like any other company, is a micro cell in the social mechanism,” said Zhang in an earnings call with analysts, when asked about challenges ahead. “We would certainly hope to see China continue to get better, to see social development continue to make progress.”
“We will be seeking a balance between cost optimisation and control on the one hand, while also continuing to make important investments in technology and other core areas to build our capacities,” said Toby Xu, chief financial officer at Alibaba.
During the June quarter, sales at Alibaba’s China commerce business totalled 141.94 billion yuan, a slight drop from a year earlier, contributing 69 per cent of the total quarterly revenue. Major Chinese cities, including Shanghai and Shenzhen, all experienced various levels of lockdowns, which weighed on domestic retail.
International commerce business rose 2 per cent to 15.45 billion yuan, making up 7 per cent of the total revenue.
Local consumer services – which includes location-based services such as on-demand delivery platform Ele.me, maps app Amap and online travel service Fliggy – increased 5 per cent to 10.63 billion yuan.
Cloud service revenue, excluding sales to other Alibaba businesses, rose 10 per cent to 17.69 billion yuan, the fastest growth among all of the company’s business segments, contributing 9 per cent of the total revenue.
Still, the increase marked a slowdown from the 20 per cent growth seen in the December quarter and the 12 per cent growth in the March quarter. This was “a result of multiple factors, including slowing macroeconomic activities, decline in revenue from the top internet customers, softening demand from China’s internet customers, and a delay in parts of our hybrid cloud projects due to the impact of Covid”, said Zhang.
