Alibaba posts lackluster growth, hit by China’s pandemic control measures

Chinese e-commerce company  Alibaba Group Holding Ltd. reported lackluster sales growth in the October-December quarter, highlighting the financial toll of Beijing’s heavy-handed Covid-control regime and pressure from competition.  

On a call with analysts, chief executive Daniel Zhang said he sees 2023 as a year of progress for the company, which is also emerging from a two-year regulatory crackdown.

Alibaba’s quarterly revenue rose 2% from a year earlier to the equivalent of $35.9 billion, slower than the 3% expansion in the previous quarter, the company said Thursday. 

Net income attributable to ordinary shareholders was the equivalent of $6.8 billion, up 69% from the same period a year before. Alibaba’s net profit was dented a year before,\ partly due to an impairment of goodwill related to its digital media and entertainment segment. 

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While the revenue results were largely in line with forecasts, net income came in above analysts’ expectations. After a surge in premarket trading, Alibaba’s shares were flat in midmorning New York trading.

Late last year, widespread lockdowns and other pandemic control measures had dampened consumer spending. Beijing scrapped its zero-Covid policy in December. Around that time, infections surged nationwide and impacted businesses. 

In December, retail sales—a proxy for domestic consumption—fell 1.8% from a year earlier, according to the National Bureau of Statistics.

After China’s economy grew 3% in 2022, economists expect a consumer-led recovery this year. But spending could be slow to rebound, some economists say. 

Mr. Zhang on the call with analysts said he expects consumer sentiment and economic activity to recover this year.

"Although different businesses across our complex ecosystem face their own unique circumstances, we remain confident in our three main strategic pillars of consumption, cloud computing, and globalization," Mr. Zhang said.

During the December quarter, Alibaba doubled down on cutting costs in its loss-making businesses. The company’s head count went down by more than 4,000 workers in the December quarter. All told, Alibaba shed 7.5% of its workforce over the course of 2022.

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Ticker	Security	Last	Change	Change %
BABA	ALIBABA GROUP HOLDING LTD.	86.60	+1.43	+1.68%

Chief Financial Officer Toby Xu said the company will increase investments in major businesses while continuing to "enhance operating efficiency" in 2023.

The company bought back $3.3 billion worth of shares in the December quarter. Under its existing share-buyback program, the company has a remaining quota of $21 billion to deploy and won’t extend it at this point, Mr. Xu said.

Recently, Alibaba and its affiliate Ant Group Co. saw regulatory pressures ease somewhat. In January, Alibaba co-founder Jack Ma ceded control of Ant, and China’s central bank said the business rectification of Ant had been completed, concluding a tumultuous period for the fintech giant. 

Still, China is keeping a tight leash on tech companies. Recently, Chinese authorities acquired a stake in a subsidiary of Alibaba.

Weighing on Alibaba is competition in its main domestic e-commerce business. Rivals JD.com Inc. and PDD Holdings Inc.’s Pinduoduo have continued biting into Alibaba’s market share. Short-video platforms, including ByteDance Ltd.’s Douyin and Kuaishou Technology, increasingly pose a challenge.

Ticker	Security	Last	Change	Change %
JD	JD.COM INC.	37.38	+0.19	+0.51%
PDD	PDD HOLDINGS INC.	96.56	-2.24	-2.27%

China’s e-commerce sales of physical goods expanded 12.9% year-over-year in the fourth quarter, according to Wall Street Journal calculations of government data.

Losses in Alibaba’s commission and advertising revenue from sellers, a key performance metric for its bread-and-butter domestic e-commerce, expanded to 9% from 7% for the previous quarter, on par with what analysts had expected. The company said the decline was driven by a drop in sales on its flagship platforms Taobao and Tmall.

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Revenue of Alibaba’s international business increased 18% in the December quarter. Mr. Zhang reiterated the focused markets of the company’s global e-commerce business: Southeast Asia and Europe. Its unit Lazada is competing head-on with Sea Ltd.’s Shopee in South East Asia. Its international shopping site AliExpress faces competition from fast-fashion giant Shein and PDD’s six-month-old American subsidiary Temu.

Growth momentum of Alibaba’s cloud business has slowed as its clients have tightened budgets.

Late last year, Mr. Zhang took on the role of acting president of Alibaba Cloud in addition to his chief executive role of Alibaba, signaling the company’s emphasis on the cloud business.

Alibaba, like other Chinese tech companies trying to capitalize on the popularity of generative artificial-intelligence technology ChatGPT, is internally testing a ChatGPT-like large language model.

Mr. Zhang said on the call that Alibaba is well positioned to provide computing power required for large language models. "We absolutely must not fail to seize and capitalize on this crucially important, historic opportunity," he said.

Alibaba’s quarterly revenue in its reporting currency was at 247.8 billion Yuan, and its net income attributable to ordinary shareholders was 46.8 billion yuan, based on the exchange rate of about 6.9 yuan to a dollar that Alibaba used. 

Ant Group recorded an estimated net profit of 3.05 billion yuan in the quarter ended Sept. 30, sliding 83% from the same period a year before, according to The Wall Street Journal’s calculations, based on Alibaba’s earnings. That is a faster decline than the 63% year-over-year decline in the quarter ended June 30. Alibaba owns a third of Ant and reports its share of profits one quarter in arrears. 

The drop in Ant’s profit was mainly due to a decrease in the valuation of certain overseas equity investments, which resulted from changes in capital markets conditions, according to Alibaba’s disclosure.

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Rebecca Feng contributed to this article.