Alibaba Group Holding Ltd. BABA 6.34% posted its slowest quarterly revenue growth in nearly three years, a robust 41% that still prompted executives to try to dispel market concerns that the e-commerce giant is being hit by China’s economic slowdown.
Senior executives told investors and analysts on Wednesday that domestic consumers are still spending, putting at bay the economic downturn and any fallout from trade tensions with the U.S.
The slowdown “might cause concerns in the market. However, what we see from Alibaba’s platforms is that Chinese consumption growth is still strong,” said Chief Executive Officer Daniel Zhang. He cited young affluent Chinese for their resilience.
Concerns have been growing globally over China’s economic deceleration and its effect on the earnings of companies. Many companies, including Apple Inc. and Caterpillar Inc., have pointed to the impact of a slowing China on their finances.
Alibaba’s performance in the three months ending December adds to some of the gloom about the state of the Chinese economy, analysts said. NYSE-listed Alibaba runs China’s two largest online retail platforms, Taobao and Tmall, and so serves as a barometer for China’s consumer economy.
Though October-December revenue rose 41% from the year-earlier period to 117.28 billion yuan ($17.5 billion), it was the slackest rate of growth since January-March 2016. The company posted 83.03 billion yuan in revenue the same period a year before.
While spending on big-ticket items has been on the decline in China, Alibaba cited sustained consumer demand for apparel, home furnishings and fast-moving consumer goods like toiletries.
In coming quarters, that demand isn’t likely to hold up, said Steven Zhu, senior analyst at research firm Pacific Epoch. Having already cut out expensive items, he said, consumers will move on to less expensive categories now popular on Alibaba sites such as apparel and cosmetics.
Also likely to take a hit are the ads and other marketing fees Alibaba obtains from its merchants, the bread-and-butter of Alibaba’s business that grew nearly 30% year-over-year in the fiscal third quarter. “We can pretty much kiss 30% goodbye,” Mr. Zhu said.
Alibaba’s quarterly net income increased 37% to 33.05 billion yuan, above the 21.43 billion yuan that analysts had expected. A year earlier, it posted 24.07 billion yuan.
Sales in the most recent quarter were further boosted by an annual national shopping promotion, called Singles’ Day, on Nov. 11, a rough equivalent to Black Friday and Cyber Monday combined. Vendors sold a record 213.5 billion yuan, or $30.8 billion, worth of goods on its platforms that day, 27% more than in 2017. The 2018 figure also included for the first time sales in six Southeast Asian countries from Alibaba’s Singapore-based e-commerce arm Lazada Group.
Executive Vice Chairman Joe Tsai said China’s tariff battle with the U.S. was having a negligible impact on Alibaba, whose business, he said, is being driven by domestic consumption and companies.
Revenue from Alibaba’s core commerce unit—which runs the Taobao and Tmall sites and provides the lion’s share of the company’s takings—rose 40% to 102.84 billion yuan.
Alibaba has been actively investing to diversify beyond its core e-commerce platforms as it faces tougher competition in the internet services sector. It has expanded into bricks-and-mortar retail, food-delivery and pushed into overseas markets. The diversification move has helped revenue grow but weighed on profits.
Aside from being concerned about the economic slowdown, investors have also been jittery about stepped-up government scrutiny and regulation of Chinese internet companies, because that could add to operating costs.
Mr. Tsai struck an upbeat note on the regulations, saying the government is “becoming more adept at calibrating the interplay between regulation and economic growth.”
Among the regulations is a new e-commerce law that requires online merchants to properly register. Doing so will likely raise tax payments for previously unregistered merchants. Mr. Tsai cited recently announced tax-relief measures for small businesses, which he said are likely to offset some of the higher costs.
Source: The Wall Street Journal
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