Alibaba Posts Slowest Revenue Growth Since Going Public
Chinese e-commerce giant says it will focus on retaining users instead of seeking user expansion
By Yifan Wang and Will Feuer
Wall Street Journal
Updated Feb. 24, 2022 1:27 pm ET
Alibaba Group Holding Ltd. posted its slowest growth in quarterly revenue since it went public in 2014 and said it would focus on retaining users on its platforms rather than pursuing user expansion, marking a strategic shift for the Chinese e-commerce giant.
In the October-December quarter, Alibaba’s revenue increased 10% from a year earlier to 242.58 billion yuan, or $38.07 billion as of Dec. 31, missing analyst estimates.
Alibaba, which until recent years was rapidly growing and dominating China’s e-commerce market, has been grappling with a host of challenges over the past year. Those included aggressive competitors, slowing growth in the world’s second-largest economy and Beijing’s regulatory crackdown. In April, Alibaba was hit with a record antimonopoly fine in China for what regulators described as the internet titan abusing its dominant market position.
In a Thursday earnings call, Chief Executive Daniel Zhang said the company would now take a step back from its earlier bid of rapid user expansion.
“We believe we have substantively captured all consumers with purchasing power in China,” Mr. Zhang said. “Our focus will shift from new user acquisition to user retention.”
Alibaba’s American depositary receipts were down around 5% by early afternoon Thursday. Its American depositary receipts have fallen around 55% over the past year.
Since early last year, the company has ratcheted up spending on building out its e-commerce platforms in areas such as discounted goods and live-streaming, as emerging rivals such as Pinduoduo Inc. and popular short-video platforms increasingly threatened Alibaba’s market leadership.
These investments have weighed on Alibaba’s overall profitability and led to steep losses at two of its new businesses—Taobao Deals, an app that sells lower-priced goods, and Taocaicai, a grocery and fresh produce delivery operation, analysts say. Alibaba said it expects to “gradually narrow the operating losses in these two businesses in the next few quarters.”
In the December quarter, net income attributable to shareholders dropped 74% to 20.43 billion yuan, equivalent to about $3.21 billion, marking the company’s third consecutive quarter of profit declines after it suffered a loss in the first three months last year. The drop was partly due to a $3.95 billion impairment of goodwill Alibaba took in relation to its digital media and entertainment segment, it said.
Uncertainties remain over China’s macroeconomic conditions. Retail sales, a proxy for China’s consumption, have been slowing down in recent months and rose just 1.7% in December from a year ago. In November, Alibaba’s sales during its “Singles-Day” annual shopping festival, edged up by 8.5%, the worst-ever increase since the company launched the signature promotion event in 2009.
“China’s spending slowdown has concentrated especially in a few categories—apparel, sportswear, skin care and cosmetics. These happen to be Alibaba’s biggest product categories,” said Vinci Zhang, an analyst at Pacific Epoch, a research firm. He estimates that these product types make up about 30% to 40% of total merchandise sales on Alibaba’s platforms.
In November, the company slashed its revenue growth to a 20% to 23% rise for fiscal year 2022, down from an earlier forecast issued in May of about 30%, citing more sluggish consumer spending and increasing competition.
Ant Group, Alibaba’s financial-technology affiliate, had an estimated net profit of 17.61 billion yuan in the previous September quarter, up 21% from the same period a year ago, according to The Wall Street Journal’s calculations based on Alibaba’s earnings disclosures.
The rise in Ant’s profit was mainly due to gains in investments held by Ant, Alibaba said in its disclosures. Alibaba owns a third of Ant and reports its share of profits from the online-payments giant one quarter in arrears.
Last week, Chinese authorities said the country’s online food-delivery platforms should reduce the fees they charge small restaurants and merchants and help alleviate their operating pressures. That sent shares of tech stocks including Alibaba, which runs a delivery business called Ele.me, sliding.
“We remain focused on healthy and sustainable development by serving our customers, especially small and medium enterprises,” Mr. Zhang said on Thursday.
Alibaba Posts Slowest Revenue Growth Since Going Public - WSJ |
