Alibaba disappoints amid China's challenging economic outlook
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The news: China’s e-commerce titan Alibaba disappointed investors with plummeting profits and weaker-than-expected revenue growth of 4% during the June quarter, amid a weakening Chinese economy and intense competition from rivals such as JD.com and Temu-owner PDD Holdings.
The numbers: Revenue from Alibaba’s core platforms, Taobao and Tmall, fell 1%, while its cloud computing unit showed modest growth of 5.9%. The company is undergoing a strategic overhaul under CEO Eddie Wu, focusing on commerce, cloud computing, and AI.
Despite an 32% boost in international revenue, losses persisted in its overseas ventures. Net income plummeted 27%.
Alibaba shares closed 2.4% in Hong Kong but were slightly higher in the New York session, as the Hangzhou-headquartered company increased its share buyback programme to counteract the market gloom.
The context: While Alibaba struggles with a shrinking domestic market share and increased operational costs, JD.com’s 2Q results, beat profit forecasts.
Meanwhile, official economic data from China released Thursday showed the economy is fighting to recover, with retail sales rising 2.7% in July compared to a year earlier. But fixed-asset investment growth moderated and property investment fell sharply.
With the ongoing struggles in the property sector continuing, Wall Street economists have already downgraded their growth expectations for the world’s second-largest economy to below Beijing’s 5% target. JPMorgan expects China’s GDP to grow at only 4.7% this year, while Goldman Sachs anticipates 4.9% growth.
What they said: “Competition will remain a key issue for Alibaba,” Shawn Yang, an analyst at Arete Research told Bloomberg.
Commenting on the economic data, Bruce Pang, a China economist at Jones Lang LaSalle told The Wall Street Journal that “The effect of China’s pro-investment policies is fading, but that of pro-consumption policies is rising gradually.”
Pang plans to observe whether the recent uptick in retail sales growth can counteract the drop in investment growth in the coming months, he said.
The sources: Alibaba release , Bloomberg , Reuters
