Alibaba's Q4 Results Reflect Slow Demand Amid Challenges

(CapitalWatch, Nov. 17, New York) Shares in Chinese giant Alibaba Group (NYSE: BABA; HKEX: 9988) gained nearly 8% Thursday following the release of its quarterly results, and sent peer e-commerce stocks JD.com Inc. (Nasdaq: JD; HKEX: 9618) and Pinduoduo Inc. (Nasdaq: PDD) higher on the day.

Alibaba's results in the three months through September were slightly lower than expected – revenue grew 3% to $29.1 billion, according to the report. The company noted "soft" consumption demand amid the ongoing Covid-19 restrictions, as well as competition.

"I do think e-commerce hit a perfect storm of adverse conditions this year: economic downturn, zero-covid [policy], government intervention, and saturation of tier-one and two cities," Jason Goldberg, chief commerce strategist at Publicis Groupe and host of e-commerce podcast the Jason & Scot Show, told CapitalWatch. 

Alibaba logged a net loss of $3.2 billion, or $1.09 per American depositary share, in contrast to net income of $471.8 million in the same period a year ago. The company attributed the figures to the declined market value of its equity investments in publicly-traded companies and a decrease in share of results of equity method investees, partly offset by the increase in adjusted EBITA.

Key metrics pointed to both positive and negative outcomes. Alibaba demonstrated a solid free cash flow for the fiscal fourth quarter, at $5 billion, a 61% year-over-year increase.

The company highlighted 98% user retention on its main online retail platforms, Taobao and Tmall. Further, its logistics network Cainiao proved strong, showing 26% revenue growth.

Within the Alibaba Cloud segment, revenue growth from non-Internet industries was 28% and contributed 58% of overall Cloud revenue, according to the report.

On the sour side, Alibaba reported that the revenue it generated from merchants drastically declined 7%, while its international business, which includes AliExpress, saw a 3% drop in orders.

Last Friday, Alibaba concluded China's biggest annual shopping event without much fanfare. Traditionally, Nov. 11 has been the time for e-commerce giants to woo investors with record-breaking growth. However, this time, both Alibaba and JD refrained from releasing their sales results for the so-called Singles' Day. 

Instead, Alibaba said that its GMV was in line with last year's. While that means about $84.5 billion that it booked a year ago, it marked the lowest-ever growth for the shopping event.

"I do expect the China consumer market to face considerable economic headwinds for the remainder of 2022 and at least the first half of 2023," Goldberg said. "Especially for the middle and lower class."

He added that he expects the conditions to improve in the long term, but while Alibaba and China's second-largest online retailer JD.com still have significant room for growth, it will not be the same that investors have seen over the past several years.

"Increasingly, the growth story is going to need to be tied to lower tier cities," Goldberg said.