Alibaba delivers on revenue but feels China slowdown

  • TECH
  • Friday, 29 Jan 2016

Nestle's new deal: Nestle SA has agreed on a partnership with Alibaba in China to grow online sales, build key brands and offer new products. — Reuters

Strong holiday sales helped e-commerce giant Alibaba Group Holding Ltd beat forecasts on Jan 28 with a 32% rise in third-quarter revenue, but it was not immune from China's slowdown.

Alibaba's results also reflected a weakening of the Chinese economy, with so-called gross merchandise volume (GMV) rising by its slowest annual rate in more than three years.

As Chinese growth fell to its weakest pace in 25 years, Alibaba's GMV -- the total value of goods transacted on its platforms -- rose 23% to 964bil yuan (RM609.36bil).

Alibaba's US-listed shares fell by 2.1% to US$68 (RM283.48) at 1458 GMT (10.58pm Malaysia Time) following the results.

"Revenue was better than expected," Wedbush Securities analyst Gil Luria said. "The flip side is the volume growth was less than expected."

Luria said volumes might have been hit by Alibaba's efforts to clean up its marketplaces, which have been plagued by merchants faking transactions to get better rankings, which can in turn boost sales.

Alibaba is trying to replace decelerating volume growth in online shopping by expanding in other areas such as online video and local services.

But the majority of Alibaba's revenue still comes from China's online shoppers buying from domestic businesses, a business driven by growth in GMV.

Executive Vice Chairman Joe Tsai said Alibaba was buoyed by two trends that were running counter to the larger China economy, namely strong retail sales growth and deepening online penetration.

"Consumption as a share of GDP is becoming higher, so we benefit from that," Tsai said. "We've (also) seen a very massive shift of users going online."

That means what happens in the broader Chinese economy will have less effect on Alibaba, said Tsai.

Alibaba highlighted plans to develop e-commerce in rural areas and to encourage more foreign merchants to sell products into China via its platforms, but CEO Daniel Zhang said earlier this year a key focus for 2016 would be to deepen its already-strong position in China's biggest cities.

Some analysts saw this shift back to "first-tier" cities as a defensive move with its main e-commerce competitor,, making inroads and the broader economy slowing.

Alibaba's net income attributable to shareholders reached US$1.93bil (RM8.05bil), or US$0.76 (RM3.17) per share. Excluding items, Alibaba earned US$0.99 (RM4.13) per share.

Revenue rose to 34.53bil yuan (RM21.82bil) in the quarter ended Dec 31, compared with the average analyst estimate of 33.33bil yuan (RM21.06bil), according to Thomson Reuters I/B/E/S. — Reuters

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