Alibaba’s management is confident about its long-term growth prospects amid the coronavirus outbreak, as the firm said the demand is still there despite problems affecting the supply side, according to the company’s Q4 earnings call on Thursday.
The company reported a better-than-expected result for the quarter ended December 31, 2019, as revenue hit USD 23.2 billion between October and December, while adjusted earnings came in 14.5% higher than consensus at USD 2.61, according to a report posted on Smartkarma by Vincent Fernando, a chartered financial analyst at Clearsight Systems.
Annual active consumers on retail marketplaces Tmall and Taobao reached 711 million, an increase of 18 million from the 12-month period ending Sept. 30, 2019, said Alibaba, adding that over 60% of new consumers were from less developed areas.
Revenue from the company’s core retail business in China was RMB 110.5 billion (USD 15.9 billion), up by 36% year-on-year.
Revenue from local consumer services, which primarily represents revenue from Ele.me, was RMB 7.6 billion (USD 1.1 billion), up by 47% year-on-year.
However, Alibaba said they estimate revenue growth rate will decrease during the March quarter as a result of the epidemic. “It’s possible that growth rate will come down significantly. We just don’t know yet, because this is just the middle of February” said Alibaba’s chief financial officer Maggie Wu.
Daniel Zhang, CEO and chairman of Alibaba said that the “black swan,” referring to the coronavirus, will present short-term challenges to the development of Alibaba’s businesses across the board. At the same time, it will present opportunities “created by the forces of change.”
Alibaba explained that for the company’s core e-commerce business, delivery delays due to merchant and carrier operations presented challenges. The firm also said that its new retail businesses Freshippo and Taoxianda faced difficulties in their inability to handle surging orders of fresh food, groceries and daily necessities.
Among its local consumer services, restaurant visits and food delivery orders “declined noticeably year-on-year,” said Zhang, while its travel booking service Fliggy saw considerable cancellations for air tickets, hotel reservations and tour packages.
While most of Alibaba’s businesses faced some complications, its office management app platform, DingTalk, experienced “explosive growth in daily active users” and in the number of corporate users, said Alibaba, as many people have been encouraged to work from home and students started the new semester via virtual classes.
“I strongly believe that, after the virus leaves away, consumers will have strong desire to make purchases because they have been stuck at home for a long time. And, they will go out and spend,” said Zhang.
S&P Global Ratings predicted Friday in a press release that the hit from supply and logistics disruptions for Alibaba will be “acute but temporary.”
The rating agency further estimated that Alibaba may come through the coronavirus crisis stronger than ever, as their supportive measures for affected partners will strengthen Alibaba’s competitive position. The trend of more consumers shifting to online spending might also prove a boon and catalyze further penetration in categories like fresh goods.
Alibaba has rolled out a slew of measures to support its partners including commission fee waivers and low-interest loans for merchants. It also launched an RMB 1 billion (USD 143 million) fund to support supply chain and logistics partners and subsidiaries for couriers.
The growth of online grocery shopping by consumers during the outbreak may deliver another potential unintended long-term benefit for e-commerce firms such as Alibaba and JD.com, said S&P.
“Fresh goods are one of the few remaining consumer categories with relatively low online penetration, and an area of focus of e-commerce platforms. As shoppers get comfortable buying groceries online during the outbreak, such behaviors may stick long after the coronavirus is gone,” the rating agency explained.
Growing internet sales of fresh goods may also be key to unlocking further online retail penetration beyond the roughly one-quarter of total retail spending in China currently, added S&P.
Clearsight Systems’ Fernando predicted Thursday that online retail sales to surpass 50% of all retail sales by 2021, making it larger than offline for the first time in history as the coronavirus has been a major catalyst for Chinese consumers to adopt digital services.