Alibaba (BABA) fiscal first quarter results in June

Alibaba has faced growth challenges amid tighter regulations in China’s tech sector and a slowdown in the world’s second-largest economy. But analysts believe the e-commerce giant’s growth could accelerate through the end of 2022.

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Alibaba on Thursday reported fiscal first-quarter results that beat expectations, pushing U.S. premarket trade shares higher.

Shares of the Chinese e-commerce giant in Hong Kong rose more than 4% ahead of the earnings report. U.S.-listed Alibaba shares were up to 7% higher, before paring gains.

Here’s how Alibaba fared in its first fiscal quarter, compared to consensus estimates from Refinitiv:

  • Revenue: 205.55 billion Chinese yuan ($30.68 billion) vs. 203.19 billion yuan expected, flat year-on-year.
  • Earnings per American Depository Share (ADS): 11.73 Chinese Yuan vs. 10.39 Yuan expected, down 29% YoY.
  • Net income: 22.73 billion yuan against 18.72 billion yuan expected.

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

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

However, when cities emerged from lockdown in late May and early June, growth began to pick up.

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

Meanwhile, the e-commerce giant continues to face a tight regulatory environment after Beijing’s more than a year and a half crackdown on the domestic tech sector.

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

Focus on e-commerce in China

Revenue at Alibaba’s biggest business, the China trading division, which includes its popular marketplace Taobao, fell 1% year-on-year to 141.93 billion yuan. This was mainly due to a 10% decline in client management revenue. CMR is the income Alibaba earns from services such as marketing that the company sells to merchants on its Taobao and Tmall e-commerce platforms.

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

In June, Alibaba said it saw a recovery in so-called gross merchandise volume (GMV) thanks to improved logistics and the annual 6.18 China Shopping Festival that peaks in June. GMV is a measure of sales made on Alibaba’s platforms, but is not directly synonymous with revenue. The trade event sees e-commerce players offering massive discounts to customers.

As part of its business activity in China, Alibaba has also tried to increase revenue and users from its discount platform called Taobao Deals and grocery and fresh food service Taocaiicai. The Hangzhou-based company sees these new ventures as a way to attract less affluent customers to smaller Chinese cities.

Investors have ensured that Alibaba can control costs while growing these businesses. Alibaba said Taobao Deals “significantly reduced year-on-year as well as quarter-on-quarter losses through user acquisition spend optimization as well as improved average spending by active consumers”. The company did not disclose Taobao Deals’ losses.

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

Cloud slowdown

While cloud computing accounts for just 9% of Alibaba’s overall 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’s a slowdown from the 12% year-over-year revenue growth seen in the March quarter and the 29% rise seen in the same period last year.

The company’s cloud division was hit by the loss of a major customer as well as the Chinese government’s crackdown on sectors such as online education that used Alibaba’s products.

But Alibaba said the increase in cloud revenue reflected “recovered growth across non-internet industries, led by financial services, utilities and telecom industries.”

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