Alibaba on Thursday reported first-quarter fiscal earnings that beat expectations, sending its shares higher.
US-listed shares of the Chinese e-commerce giant rose as much as 6% and closed the session up 1.8%.
Here’s how Alibaba did in its fiscal first quarter, compared to Refinitiv’s consensus estimates:
Revenue: 205.55 billion Chinese yuan ($30.68 billion) vs. 203.19 billion yuan expected, flat year-on-year. Earnings per American depositary share (ADS): 11.73 yuan vs. 10.39 yuan expected, down 29% year-on-year. Net income: 22.73 billion yuan vs. 18.72 billion yuan expected.
While Alibaba beat estimates, it is the first time the company has posted consistent growth in its history.
During the quarter, Alibaba faced a number of headwinds, including a resurgence of Covid in China that led to the lockdown of major cities, including the financial metropolis of Shanghai. This led to a sluggish Chinese economy in the second quarter of the year.
However, as cities emerged from lockdown in late May and early June, growth began to pick up.
“After a relatively slow April and May, we saw signs of recovery in our businesses in June,” Daniel Zhang, Alibaba’s chief executive, said in a press release.
Meanwhile, the e-commerce giant continues to face a tight regulatory environment following Beijing’s more than a year-and-a-half crackdown on the domestic technology sector.
Although Alibaba had a tough quarter, analysts expect growth to pick up in the coming months.
China’s e-commerce in focus
Revenue at Alibaba’s biggest business, China’s commerce division, which includes its popular Taobao marketplace, fell 1 percent year-on-year to 141.93 billion yuan. This was mainly due to a 10% drop in client management revenue. CMR is the revenue Alibaba earns from services such as marketing that the company sells to merchants on its e-commerce platforms Taobao and Tmall.
Alibaba said CMR declined as overall online sales of physical goods on its Taobao and Tmall platforms declined “single- to mid-single-digit year-over-year” and there was an increase in order cancellations in due to the impact of the resurgence of Covid and the “results that resulted”. in supply chain and logistics disruptions in April and most of May.”
In June, Alibaba said it saw a recovery in so-called gross merchandise volume (GMV) thanks to improved logistics and China’s annual 6.18 shopping festival, which ends in June. GMV is a measure of sales made on Alibaba’s platforms, but is not directly equivalent to revenue. The shopping event sees e-commerce players offering massive discounts to customers.
Alibaba has faced growth challenges amid tightening regulation of China’s domestic technology sector and a slowdown in the world’s second-largest economy. But analysts think the e-commerce giant’s growth could pick up in the rest of 2022.
Kuang Da | Jiemian News | VCG | Getty Images
With its commerce business in China, Alibaba has also sought to expand revenue and users for its discount platform called Taobao Deals and grocery and fresh food service Taocaicai. The Hangzhou-based company sees these new businesses as a way to attract less affluent customers to smaller Chinese cities.
Investors have been watching to see if Alibaba can keep its costs under control while growing these businesses. Alibaba said Taobao Deals “significantly reduced year-on-year and quarterly losses driven by optimization of user acquisition spend and improvement in average active consumer spend.” The company did not disclose Taobao Deals losses.
Alibaba said that in the June quarter, Taocaicai GMV grew more than 200% year-on-year, while its losses “increased moderately compared to the same quarter last year.”
Toby Xu, Alibaba’s chief financial officer, said during a call with analysts that the company will continue to focus on “cost optimization and cost control” in the coming quarters. Xu said Alibaba is trying to strike a balance between controlling costs and continuing to make “significant investments” for long-term growth.
Cloud slowdown
Although cloud computing is only 9% of Alibaba’s global revenue, it is seen as an important part of the company’s future growth and profitability.
Alibaba reported cloud computing revenue of 17.68 billion yuan in the June quarter, up 10% from a year earlier. But that was a slowdown from the 12% year-over-year revenue growth seen in the March quarter and the 29% increase seen in the same period last year.
The company’s cloud division has been hit by the loss of a major customer, as well as the Chinese government’s crackdown on industries such as online education that used Alibaba products.
But Alibaba said the rise in cloud revenue reflected “recovery growth in general non-Internet industries, driven by financial services, utilities and telecommunications industries.”
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