Alibaba’s Next Challenge: a Sputtering Chinese Economy

Alibaba BABA 12.85%

Had a terrible 2021. Unfortunately, this year probably won’t be any better.

Anxious policymakers in Beijing have begun to signal that they want to give China Big Tech a break – but that is only for the sake of the overall picture for the Chinese economy and consumers in particular. , has darkened a lot.

Beijing’s regulatory crackdown on consumer technology companies – which resulted in a record $2.8 billion fine – eclipsed Alibaba’s results last year, but the economic difficulties Growth for China will clearly be a top concern this year.

The Chinese e-commerce giant on Thursday reported a 9% year-over-year increase in revenue for the quarter ended March – the slowest growth since the company went public in New York. in 2014. Its adjusted net income fell 24% year over year. Both were slightly above estimates by analysts in S&P Global Market Intelligence.

Alibaba did not provide financial guidance for this fiscal year, which ends next March, as usual. It said the company could not control or predict the risks and uncertainties arising from Covid-19. China has enacted strict measures to try to limit the spread of the Omicron variant, such as lockdowns in cities including Shanghai over the past few months.

That has dealt a heavy blow to the Chinese economy, especially given the already sluggish housing market. Retail sales fell 11% year-on-year in April, the biggest drop since 2020. Revenue from Alibaba’s core e-commerce business on its Taobao and Tmall platforms did not changed last quarter as the total value of goods sold on these platforms fell to a single-digit low from a year earlier. The company said its total merchandise sales in March decreased due to the impact of Covid-19. While Shanghai will gradually reopen, adherence to China’s zero-Covid strategy will continue to cloud the company’s outlook.

Alibaba’s margins are also shrinking as it invests in new initiatives that seek growth areas. However, slower growth coupled with lower margins may not be welcome news for investors. Not even a lot of acquisitions helped. Alibaba increased its share buyback to $25 billion, from $15 billion in March, but its shares have slid longer since.

Analysts have slashed their estimates for the company. Operating profit forecasts for this fiscal year ending next March have been cut by nearly half over the past 12 months, according to S&P Global Market Intelligence. Revenue is also estimated to be down 15%.

Alibaba has lost about three-quarters of its value since peaking in late 2020. Even so, the pain for shareholders is far from over. As markets around the globe move into a more risk-averse mode, Alibaba needs to show it can still thrive — even in this post-pandemic, post-tech repression world.

Otherwise, investors’ favor will remain elusive.

Write letter for Jacky Wong at jacky.wong@wsj.com

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https://www.wsj.com/articles/alibabas-next-challenge-a-sputtering-chinese-economy-11653571640?mod=rss_markets_main Alibaba’s Next Challenge: a Sputtering Chinese Economy

Edmund DeMarche

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