Alibaba revenue soars 34% in June quarter, but is leery of possible US clamp down
This is close to sales growth before the Covid-19 lockdowns, but Alibaba CEO is keeping a close eye on ‘very fluid’ US policies towards China
Hong Kong — Alibaba Group Holding’s revenue growth has returned to levels not seen since the pandemic, fueling hopes of a Chinese economic recovery despite worsening US relations.
China’s most valuable corporation reported better-than-expected 34% sales growth in the June quarter, a shade off the 38% it managed in the December quarter before Covid-19 shut down swathes of the country. That underscored how the e-commerce giant is riding a pick-up in consumer spending in a country among the first to recover. But CEO Daniel Zhang said it will keep a close eye on “very fluid” US policies towards China.
US President Donald Trump has made a tough position on the world’s second-largest economy a key element of his campaign in the lead-up to the US elections, sanctioning or threatening to clamp down on the Asian country’s biggest technology companies. Both sides have clashed on issues from the coronavirus to trade, while lawmakers brandish regulations that may force Chinese corporations such as Alibaba off US bourses. Its shares slid about 2% in New York.
“We face uncertainties from not only the pandemic but also increasing tensions between US and China,” Zhang told analysts on a call. “We are assessing the situation and any potential impact carefully and thoroughly, and will take necessary actions to comply with any new regulations.”
Alibaba reported sales of 153.8-billion yuan ($22.2bn) and net income of 47.6-billion yuan in the June quarter, both surpassing projections. Some of that stemmed from record sales during a June shopping event this year, as heavy discounting lured shoppers who had delayed purchases during the national lockdown. It said annual active consumers in China had grown 16-million to 742-million, powering a 34% rise in its core commerce business.
Ant Group, Alibaba’s 33%-owned financial affiliate, grew profit roughly six-fold to $1.3bn in the March quarter, offering a glimpse into its earnings power ahead of a mega initial public offering (IPO) in Hong Kong and mainland China.
Landing in the White House’s cross-hairs could, in the long run, endanger a roughly $695bn empire spanning online retail, food delivery and internet computing. Trump, who has issued orders barring American individuals and companies from doing business with Tencent Holdings’s WeChat and ByteDance’s TikTok, has said he’s considering extending a ban to other Chinese companies.
US Congress is moving closer to legislation that could bar Chinese firms from trading on US bourses. And India is growing increasingly hostile, though Alibaba said the withdrawal of its UC Browser service there shouldn’t have a material impact on its overall business.
However, growing competition at home is the more immediate challenge. Its market position is being chipped away by multiple competitors. Start-up Pinduoduo (PDD) has lured small-town buyers away with cheaper bargains. Arch-foe JD.com has ventured beyond its traditional strength in consumer electronics into groceries, with supermarket goods the biggest contributor to its first-half revenue among all product segments.
More broadly, social media companies such as ByteDance and Tencent are increasingly reaching out to shoppers through live-streaming, after Covid-19 fueled an unprecedented boom in online entertainment. Alibaba’s Taobao Live has championed the use of influencers to hawk everything from lipstick to crayfish. While rival video apps such as Tencent-backed Kuaishou and ByteDance’s Douyin typically direct traffic to Alibaba platforms, they are now seeking to handle the transactions by themselves.
Competition in food delivery is also intensifying. Alibaba’s Ele.me app now delivers flowers, housekeepers and masseurs in addition to lunch boxes, as Tencent-backed rival Meituan-Dianping has diversified into beauty products and handsets.
“The biggest challenge for Baba is that e-commerce is no longer a two-horse race. JD is challenging them at the top end of the market, and PDD are winning in many of the fast-growth lower tier markets, which have been elusive to Baba, and is also aggressively expanding into higher tier cities and cross border,” said Mark Tanner, founder of Shanghai-based marketing and research agency China Skinny.
“Social/video commerce is taking an increasing share of the pie as all forms of digital consumption morph in sales channels — which arguably presents the biggest red flag.”
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