Alibaba Group, the leading Chinese e-commerce giant, experienced a decline in its shares as investors reflected on a lackluster quarterly performance and increasing competition. Despite announcing plans for buybacks, the company’s shares fell by 6.8% in Hong Kong and nearly 6% in the U.S. overnight.
In the past year, Alibaba’s Hong Kong-listed shares have witnessed a decline of 33%, and the new year has seen an additional drop of almost 8%. These figures highlight the challenges faced by the organization.
Alibaba reported that its third-quarter revenue increased by 5.0% to 260.35 billion yuan compared to the previous year. Although this fell slightly short of the CNY261.34 billion ($36.40 billion) expectation in a FactSet poll, it surpassed the revenue generated in the two prior quarters.
However, the company’s net profit for the quarter ending December experienced a significant decrease of 69% to CNY14.43 billion. This outcome was below the CNY36.99 billion expectation in a FactSet poll. Alibaba attributed these results to mark-to-market changes on equity investments and heavy impairments related to their retail business Sun Art and video-streaming platform Youku. On the other hand, non-GAAP net income – which excludes mark-to-market changes, impairments, and share-based compensation expenses – declined by only 4%, amounting to roughly CNY48 billion.
Additionally, Alibaba announced its approval of a $25 billion expansion to its share buyback program until March 2027.
The future holds both challenges and opportunities for Alibaba Group as it navigates the competitive landscape while implementing strategies to regain stability and profitability.
Alibaba’s Sales Growth Slows Amid Economic Slowdown in China
Sales at Alibaba, one of China’s leading companies in terms of market capitalization, have experienced single-digit growth recently. This slowdown can be attributed to the economic slowdown in the country as well as the rise of smaller competitors. In contrast, Chinese e-commerce company PDD Holdings saw an impressive 94% increase in top-line growth during the September quarter.
Analysts from Citi, led by Alicia Yap, described Alibaba’s results as “relatively in-line-ish.” They pointed out that although revenue was slightly soft, the company’s non-GAAP income benefited from higher gross profit margin and lower research-and-development expenses. The analysts also acknowledged Alibaba’s investment plans, which aim to drive growth and gain market share. However, they cautioned that share gains may take time due to intensified competition and challenging macro headwinds.
Despite this, Citi maintained a buy rating on Alibaba, citing the company’s undemanding valuation.
Shawn Yang, a senior research analyst at Arete Research Asia, noted that while Alibaba’s overall results were in line with expectations, the growth of its core e-commerce and cloud businesses appeared subdued. Revenue from Alibaba’s Taobao and Tmall Group increased by only 1.6% and 2.6%, respectively.
Yang emphasized that while the company’s move to buy back shares is positive, investors also prioritize the fundamentals of the business. He emphasized the importance of focusing on the latter.
