Alibaba set to report steady growth in third quarter, bolstering investor confidence after rough two years

Analysts expect improved performance from Alibaba last quarter after two years of investigations, geopolitical tension, and a rough economic climate at home
Expected growth of about 4 per cent is far from the double digits Alibaba used to report, but it is taken as a good sign amid flagging consumer confidence

Alibaba

Tracy Quin ShanghaiandAnn Caoin Shanghai

Published: 6:00pm, 15 Nov, 2022

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E-commerce giant Alibaba Group Holding is expected to report steady revenue growth for the previous quarter, analysts said, possibly shoring up investor confidence after two years of being battered by Beijing’s scrutiny of Big Tech and the US-China tech war.

Once the poster child for China’s technological success, growing from the country’s dominant e-commerce player into a major provider of cloud computing and other services, Alibaba has faced a crisis of confidence from investors since its fintech affiliate Ant Group was forced to scrap what would have been the world’s largest IPO in 2020. A month later, authorities opened an antitrust probe against Alibaba.

Since then, Alibaba’s stock price in Hong Kong has fallen to about HK$80 (US$10.20), down more than 70 per cent from its peak of HK$307 in October 2020.

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But there are signs that external headwinds for Alibaba may have come to an end: China has started to relax certain Covid-19 controls, which could boost domestic consumer spending; Beijing relaxed its campaign cracking down on Big Tech firms; audits by US regulators, an uncertainty hanging over US-listed Chinese firms, have been conducted; and Ant Group has completed capital base expansion for consumer credit.

The days of 30 per cent annualised revenue growth are likely over for Alibaba, but a report reflecting solid business performance expected on Thursday could assure investors that the company remains a safe bet for tapping into China’s consumer market and the future of its technology sector, analysts said.

Alibaba owns the South China Morning Post.

“A positive revenue growth in the September quarter should not be a hard thing for Alibaba. Even though the actual results may not go beyond expectations, it is likely to return to a growth track,” said Carmen Zhu, a senior analyst at research firm Leadleo.

Alibaba’s revenue for the quarter ended September is estimated to have reached 209.2 billion yuan (US$29.6 billion), a 4.3 per cent increase from the same period last year, according to a Bloomberg survey. Adjusted net income may fall 4 per cent.

Cloud computing has remained a bright spot for growth at Alibaba. Photo: Alibaba

Alibaba shares in Hong Kong have gained nearly 30 per cent from a low earlier this month. But its previous decline is in line with the bearish sentiment that has hit other Big Tech stocks in China.

Shares of Tencent Holdings, the Shenzhen-based social media and video gaming giant, are also down nearly 37 per cent year to date. Like Alibaba, Tencent shares recovered slightly this month, seeing a nearly 30 per cent rise since October 28 to HK$282, well below its peak of HK$744 in January 2021.

Sentiment is low in the tech sector globally, as well, as industry giants brace for an expected recession.

Facebook owner Meta Platforms announced the largest ever cut to its workforce, laying off 13 per cent of its staff, or nearly 11,000 employees. Amazon also plans to lay off approximately 10,000 people in corporate and technology jobs starting as soon as this week.

As the US Federal Reserve fights inflation, rate increases have also contributed to fears of a recession. Cheng Yu, a researcher at the Beijing-based research institute Kandong, suggested this might help some aspects of Alibaba’s business.

“The contractionary effect of the Fed has not yet manifested,” he said. “This is also good for Alibaba’s cross-border business.”

Improved domestic consumption in the third quarter could also help Alibaba’s results, Cheng noted.

02:07

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“While macro headwinds and subdued consumer sentiment weighed on Alibaba China’s commerce retail GMV [gross merchandise value] growth in the first half year of 2022, we expect to see a gradual recovery in 2023, which will also provide additional support for earnings recovery,” analysts at CMB International wrote in a research note in late October.

“Despite short-term headwinds, Alibaba’s international expansion and long-term cloud business are on track,” they noted.

Cloud computing remains an important segment for Alibaba, which has bet on it as a driver of future growth. Cloud service revenue, excluding sales to other Alibaba businesses, rose 10 per cent to 17.69 billion yuan in the June quarter, the fastest growth among all of the company’s business segments, contributing 9 per cent of 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.

LeadLeo’s Zhu suggested that Alibaba still faces multiple risks even though the company has stable fundamentals. “Risks lie in the uncertainty brought by the pandemic, and the slowing growth of [the retail] industry, as well as fierce competition,” Zhu said.

“The US review and the valuation of Ant Group, as well as its strategic investments, are all uncertain factors,” she added.

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