Alibaba shares rose 5% after earnings beat - but posted first consistent revenue growth in history

Alibaba shares rose 5% after earnings beat – but posted first consistent revenue growth in history

Alibaba has faced growth challenges amid regulatory tightening on China’s domestic technology sector and a slowdown in the world’s second-largest economy. But analysts believe the e-commerce giant’s growth could pick up through the rest of 2022.

Quang Da | Jimian News | CGV | Getty Images

Alibaba reported its first-quarter financial earnings on Thursday that beat expectations, sending its stock higher in pre-market US trading.

Shares of the Chinese e-commerce giant in Hong Kong rose more than 4% ahead of the earnings report. US-listed Alibaba shares rose 7% before paring gains.

Here’s what Alibaba did in the first quarter of the fiscal year, versus the Refinitiv consensus estimates:

  • Revenue: 205.55 billion yuan ($30.68 billion) vs. 203.19 billion yuan is expected, remaining flat on an annual basis.
  • Return on American Depositary Share (ADS): 11.73 yuan vs. Expected 10.39 yuan, down 29% year on year.
  • Net income: 22.73 trillion yuan vs. 18.72 billion yuan expected.

Although Alibaba beat estimates, this is the first time the company has recorded consistent growth in its history.

This quarter, Alibaba faced a number of headwinds, including the resurgence of Covid in China which led to the shutdown of major cities, such as the financial capital Shanghai. This slowed the Chinese economy in the second quarter of the year.

However, as cities emerge from lockdown in late May and early June, growth is beginning to pick up.

“After relatively slow months in April and May, we saw signs of recovery in our business in June,” Alibaba CEO Daniel Zhang said in a press release.

Meanwhile, the e-commerce giant is still facing a tough regulatory environment after Beijing’s more than one-and-a-half year crackdown on the domestic tech sector.

While Alibaba had a tough quarter, analysts expect growth to pick up in the coming months.

Focus on e-commerce in China

Revenue from Alibaba’s largest business, the Chinese commerce division that includes its popular marketplace Taobao, fell 1% year on year to 141.93 billion yuan. This is mainly due to a 10% decrease in customer management revenue. CMR is the revenue that Alibaba gets from services like marketing that the company sells to merchants on the Taobao and Tmall e-commerce platforms.

Alibaba said the CMR fell because overall sales of physical goods online on its Taobao and Tmall platforms fell “from a single-digit average year-over-year” and there was an increase in order cancellations due to the impact of the resurgence of Covid and “resulting restrictions” in Supply chain and logistics disruptions in April and most of May.”

In June, Alibaba said it saw a rebound in so-called gross merchandise volume (GMV) thanks to improved logistics and the 6.18 annual shopping festival in China that culminates in June. GMV is a measure of sales handled across Alibaba’s platforms but does not directly equate to revenue. The shopping event sees e-commerce players offer massive discounts to customers.

Under its China business, Alibaba is also trying to expand revenue and users for its discount platform called Taobao Deals, grocery and fresh food service Taocaicai. The Hangzhou-based company sees these new businesses as a way to attract less affluent clients in smaller Chinese cities.

Investors have been watching whether Alibaba can keep its costs in check while growing these businesses. Alibaba said Taobao deals “significantly reduced year-on-year as well as quarterly losses driven by better spending in user acquisition as well as improved average spending by active consumers.” The company did not disclose the losses of Taobao deals.

In the June quarter, Alibaba said Taocaicai GMV grew more than 200% year-over-year, while its losses increased “moderately compared to the same quarter last year.”

slow down the cloud

While cloud computing accounts for only 9% of Alibaba’s total 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% year on year. But that was a slowdown from 12% year-over-year revenue growth in the March quarter, and a 29% increase 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 have been using Alibaba products.

But Alibaba said the increase in cloud revenue reflects “the recovering growth of the offline industries in general, driven by the financial services, public services and telecom industries.”

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