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Alibaba posts underwhelming Q3 earnings, trims annual growth target

Written by Jiaxing Li Published on     3 mins read

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Slowing domestic consumption and an increasingly competitive market hurts the e-commerce giant’s prospects.

Alibaba posted slowed revenue and earnings growth during the September quarter, falling short of market estimates, the company’s latest financial report released on Thursday showed. Alibaba also cut its annual growth target and forecasted the lowest growth rate since it went public in 2014, citing sluggish economic growth, regulatory headwinds, and intensifying competition.

Total Q3 revenue was RMB 200.7 billion (USD 31.1 billion), an increase of 29% year-over-year. Alibaba’s quarterly revenue would have only increased 16%—the lowest since 2014. This calculation does not include financials related to Sun Art, a supermarket chain in which Alibaba holds a controlling stake of over 70%.

So far, China’s major internet firms have all posted severe slumps in their Q3 earnings. Some have adopted a pessimistic outlook for the following quarters while regulators crack down on the sector.

Domestic commerce remains the backbone of Alibaba’s business. It made up around 78% of Q3 revenue. The growth rate of this line of commerce dipped to 14% YoY, excluding Sun Art.

The company slashed its revenue guidance and expects its revenue growth for the current fiscal year to be 20% to 23% YoY. Alibaba attributes the soft growth to the slowing domestic consumption and increasingly competitive market.

However, it’s difficult to quantify the impact of the two factors, CEO Daniel Zhang said when asked by investors during the earnings call. “Our performance to some extent will reflect the overall market condition,” Zhang added.

China’s domestic retail sales in August and September grew by 3.3% and 4.5% YoY, respectively, data from the National Bureau of Statistics shows.

Sign-ups have climbed. Alibaba’s consumer base continued to grow. Its global annual active consumers (AACs) reached 1.24 billion, a 20% YoY jump and a net increase of 62 million compared with last quarter. AACs increased to 953 million in China and 285 million overseas.

Alibaba will continue making strategic investments in Taobao Deals, local consumer services, and community marketplaces, as these initiatives have demonstrated effective user acquisition beyond China’s major cities.

In the international commerce sector, Alibaba said it saw “healthy expansion” of its user base and 33% YoY revenue growth in Q3. Businesses like Lazada, Trendyol, and AliExpress exhibited robust growth driven by their localization, Zhang said.

Alibaba Cloud, another growth engine of the conglomerate, delivered a strong 33% revenue growth this past quarter. Zhang said its cloud computing benchmarks against the world’s top technologies.

Alibaba is one of the worst casualties in China’s sweeping data security and antitrust crackdown. In April, Alibaba was fined USD 2.8 billion after regulators said the company had abused its dominant position. A slew of new rules on internet connectivity and data privacy were rolled out in the past quarter to rein in big tech’s business practices.

To navigate the regulatory headwinds, internet conglomerates say they will increase investments in socially responsible development programs, slow down their expansion, and explore new business opportunities. Baidu plans to shift gears and march deeper into AI and move to achieve “chip self-sufficiency.” Tencent says it will invest RMB 100 billion—nearly two-thirds of its profit during 2020—into social responsibility initiatives, answering the government’s call for “common prosperity.”

Alibaba emphasized its contributions to society. In September, the company pledged to invest RMB 100 billion by 2025 to rejuvenate China’s rural farms. This Singles’ Day, Alibaba downplayed sales volumes during the world’s largest shopping event and highlighted its charitable donations and sustainable development, without releasing the splashy sales figures.

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