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Alibaba CEO shuns low-price competition as profit roars back

Written by Nikkei Asia Published on   3 mins read

Chinese e-commerce group posts first net income growth since 2020 after cutting costs.

Alibaba Chairman and CEO Daniel Zhang said last Thursday that the low-price strategies pursued by some online retailers are not sustainable, as rival JD.com is set to spend billions of yuan on a subsidy program for merchants in a price war with Pinduoduo.

“We haven’t been a low-price competitor,” Zhang said in a conference call after the Chinese e-commerce group reported its first quarterly profit growth since 2020. “We haven’t been relying on heavy subsidies. We haven’t been engaged in low-level competition.”

Asked about JD.com’s subsidy plan, he did not mention the company by name, but said “price subsidies are nothing new.”

“Every couple of days somebody out there comes up with a bright idea to try to engage in heavy price subsidies in order to turn around the business,” the CEO said. “But if you take a clear-eyed look at history, nobody, no player ever has managed to achieve that kind of turnaround by relying on price subsidies. What it really takes is technology innovation.”

Hangzhou-based Alibaba’s net income attributable to ordinary shareholders was RMB 46.82 billion (USD 6.8 billion) in the December quarter, up from RMB 27.69 billion (USD 4 billion) in the same period a year earlier, as cost cuts lifted the bottom line.

The e-commerce giant’s revenue grew 2% on the year to RMB 247.76 billion (USD 35.9 billion), edging out an average forecast of RMB 245.18 billion (USD 35.5 billion) by 23 analysts surveyed by Refinitiv.

For the December quarter, Alibaba’s total number of employees was down 4,163 from the previous quarter to 239,740. About 20,000 employees left the company over the entire year.

Alibaba’s latest results cover a period when dozens of Chinese cities were placed under de facto lockdowns as part of China’s zero-COVID policy, which ended in December.

The company’s most important revenue source, online shopping platform Taobao and Tmall’s customer management fees, including advertising income and commissions, shrank 9% on the year, mainly due to higher order cancellation rates as a result of supply chain and logistics disruption caused by COVID-19.

Net profit at Ant Group, Alibaba’s fintech affiliate whose earnings lag a quarter behind Alibaba’s, was down 82.7% in the September quarter from a year earlier to RMB 3.05 billion (USD 442.3 million). Ant Group founder Jack Ma relinquished control of the fintech giant last month, as the company tried to draw a line under a regulatory crackdown that was triggered soon after its mammoth stock market debut was scuppered two years ago.

As e-commerce user growth slows, Alibaba has been betting on its cloud computing services. Yet sales of cloud computing, usually one of its fastest-growing segments, increased by a mere 3% on the year to RMB 20.2 billion (USD 2.93 billion).

Zhang, who took on the role of acting president of Alibaba Cloud late last year after a series of setbacks for the service, said cloud computing is one of Alibaba’s “core strategies for the future.”

With the ChatGPT artificial-intelligence-powered chatbot taking the tech world by storm, Nikkei Asia reported Wednesday that China has told big Chinese technology companies not to offer users access to the Microsoft-backed program amid growing alarm over its uncensored replies to user questions. But before that, Alibaba and others were already rushing to unveil their own plans for developing ChatGPT-like services.

When asked about ChatGPT, Zhang did not mention the viral chatbot’s name, but instead referred to the technology more broadly as “generative AI.” He said Alibaba is not talking about having a chatbot for the sake of having one, but about “integrating that capability deeply into the business, around consumption and user experience for content generation to drive higher advertising effectiveness.”

“All the global vendors are talking about that, but we in Alibaba see this as an extremely important opportunity and we intend to fully capture it,” Zhang said.

Alibaba sold off its remaining stake in Indian digital payment platform Paytm earlier this month, a move that hints at a shakeup of the Chinese tech giant’s investment strategy in India. In the future, Alibaba’s globalization of consumption- and cloud-based offerings will continue to be focused on Southeast Asia and Europe, said Zhang.

Alibaba’s New York-listed shares were down 1.18% in afternoon trading Thursday after rallying earlier on the company’s results.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


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