Falling spending in China weighs on e-commerce giant Alibaba’s results as it misses estimates
By Deborah Mary Sophia and Casey Hall
(Reuters) – Alibaba Group Holding Corp reported first-quarter revenue on Thursday that missed market expectations as the company’s domestic e-commerce sales came under pressure from cautious spending by Chinese consumers in a faltering economy.
A faltering economic recovery in China, combined with a persistently weak housing market and high levels of job insecurity, have undermined consumer confidence and purchasing power in the world’s second-largest economy, hitting global businesses as a whole.
Alibaba also faces stiff competition from rivals including JD.com and discount-focused retail platforms such as PDD Holdings’ Pinduoduo and ByteDance-owned Douyin.
Alibaba reported revenue of 243.24 billion yuan ($33.98 billion) for the quarter ended June 30, compared with analysts’ average estimate of 249.05 billion yuan, according to LSEG data.
Revenue at the company’s domestic e-commerce business fell 1 percent, even as the number of shoppers and their frequency of purchase increased order growth by double digits.
Chinese e-commerce giants have had to resort to steep discounts and promotions to attract shoppers, putting pressure on margins across the retail sector.
“The spending decline in China is real. Consumers are spending less, reducing their purchases and becoming more rational,” said Vinci Zhang, an analyst at M Science. “So Alibaba and JD.com will likely continue to face challenges in the second half of the year.”
Sales during China’s mid-year e-commerce festival in June fell for the first time in history, according to third-party estimates, despite efforts by major platforms to distribute deals for an extended period.
Alibaba’s U.S.-listed shares, which beat market estimates for quarterly profit, reversed earlier losses to rise about 2% in early trade Thursday.
Alibaba executives have said that increased shopping and the introduction of new tools for merchants will boost the platform’s advertising and customer management revenues in the future.
In a conference call with analysts Thursday, executives reiterated their expectations for new monetization tools to drive revenue growth in the second half of this fiscal year.
Alibaba Group Chief Executive Eddie Wu said the priority for domestic e-commerce arm Taobao and Tmall Group was to improve user experience to increase gross merchandise value (GMV), a measure of sales.
“As market share stabilizes, we can focus on monetization,” he said.
Alibaba announced in March 2023 the biggest shakeup in the company’s history, splitting into six units and focusing more on its core businesses, including domestic e-commerce.
Helped by investments to expand its global presence and growing demand worldwide for low-cost goods from China, revenue at Alibaba’s international e-commerce unit rose 32 percent to 29.3 billion yuan.
For Alibaba’s cloud segment, revenue rose 6% to 26.55 billion yuan, an acceleration from 3% growth in the previous quarter, driven by increased public cloud adoption and strong demand for AI-related products.
The company has taken steps to reduce low-margin project-based contracts and said scaling its cloud infrastructure has helped it reduce prices for its cloud products.
Net profit attributable to ordinary shareholders in the quarter came to 24.27 billion yuan, down from 34.33 billion yuan a year earlier.
($1 = 7.1584 Chinese yuan)
(Reporting by Deborah Sophia in Bangalore and Casey Hall in Shanghai; Editing by Sriraj Kalluvila and Kirsten Donovan)
