Alibaba shares decline as earnings show slowing e-commerce growth

Shares of Alibaba Group Ltd. were trading lower Thursday after the company missed revenue expectations for its latest quarter amid a slowdown in its Chinese e-commerce business.

The company saw fiscal third-quarter revenue rise to RMB242.6 billion ($38.1 billion) from RMB221.1 billion a year prior, though analysts tracked by FactSet had been expecting RMB246.3 billion. Alibaba’s
10% year-over-year revenue growth rate for the December quarter was significantly below the 29% rate it saw in the September quarter.

Deputy Chief Financial Officer Toby Xu acknowledged on Alibaba’s earnings call that the company’s “China commerce segment may be impacted by slowing macro and increased competition,” though he pointed to stronger revenue growth for the company’s cloud-computing and international commerce businesses. China commerce is by far Alibaba’s largest revenue segment and it increased revenue by 7% in the quarter, while cloud revenue grew by 20% and international commerce revenue saw an 18% bump.

Alibaba had previously warned about the negative impacts of competition and the macroeconomic landscape during its prior earnings report, when the company lowered its full-year forecast.

U.S.-listed shares of Alibaba were off 3.4% in Thursday afternoon trading after paring losses. They had been down as much as 8.8% earlier in the session.

Xu further noted on Alibaba’s Thursday morning earnings call that the company “increased merchant support through incentives to drive merchant adoption of new value-added services” and made “strategic reductions” in some service fees to bring down operational expenses for merchants as consumption decelerates.

As such, Alibaba’s revenue grew more slowly than its gross merchandise volume in the most recent quarter.

“We believe a step-up in near-term spending builds good will with our customers and supports sustainable growth for our China commerce businesses over the long run,” Xu continued.

Chief Executive Daniel Zhang said that the apparel and electronics categories have better online penetration in China, but he sees “very good opportunities for driving online conversion deeper” in areas like fresh foods and groceries, where there’s so far been less e-commerce penetration.

Though Alibaba faces challenges in the near-term, at least one analyst remained upbeat about the Chinese e-commerce company’s longer-term prospects.

“Despite [the] online shopping sector experiencing macro-headwinds, we expect the company to continue to deepen mind-share and enhance the consumer experience through segmentation strategies,” Jefferies analyst Thomas Chong wrote following the report.

Alibaba generated December-quarter net income of RMB20.4 billion, or RMB7.51 per American depositary share, down from RMB79.4 billion, or RMB28.85 per ADS, in the year-prior quarter. After adjustments, Alibaba earned RMB16.87 per ADS, which was down from RMB22.03 per ADS a year earlier but above estimates for RMB15.93 per ADS that analysts tracked by FactSet had been anticipating.

The company reported 1.28 billion annual active consumers as of the December quarter, including 979 million from China and 301 million from overseas. The total was up roughly 43 million from Alibaba’s September-quarter figure.

U.S.-listed shares of Alibaba have stumbled recently, declining about 58% over the past 12 months as the S&P 500
has risen about 8% and as the KraneShares CSI China Internet ETF
has dropped 65%.