China’s Alibaba profit plunges 86% despite revenue beating estimates

China’s Alibaba profit plunges 86% despite revenue beating estimates

China’s Alibaba Group Holding reported an 86% drop in fourth-quarter profit on Tuesday mainly due to valuation changes from equity investments, sending US-listed shares down nearly 6% in early trade despite results beating forecasts.

It also announced that it will revive a plan first floated in 2022 to upgrade its secondary listing in Hong Kong to a primary listing, while retaining its primary listing in New York. It aims to complete this dual-major listing by August.

China’s largest e-commerce group by market share has had a tumultuous year since announcing the biggest shakeup in its 25-year history in March 2023, splitting into six units and refocusing on its core business, including domestic e-commerce.

Consumers in China have also been spending cautiously after the Covid-19 outbreak amid a prolonged economic slowdown and real estate slump.

Alibaba’s focus on low-cost goods in response to cautious consumer spending helped boost domestic e-commerce sales, driving 7% growth in overall revenue in the quarter to March 31.

The group’s net income, however, was 3.27 billion yuan ($452 million), compared to 23.52 billion yuan a year ago.

Shares of Alibaba ( BABA ) fell 5.6% in early New York trading.

Chairman Joe Tsai told analysts in a post-earnings call that the company is seeing “early signs” of growing optimism.

“We have seen green shoots in some discretionary items such as apparel and electronics,” he said. “We know Chinese consumers have the ability to spend, but that willingness to spend reflects their confidence about the future.”

Focused on discounts
Quarterly revenue at its domestic commerce arm, Taobao and Tmall Group, rose 4% year-on-year with double-digit order volume growth.

Alibaba’s domestic trading results in recent quarters have been overshadowed by strong growth for low-price, discount-focused platforms such as PDD Holdings’ ( PDD ) Pinduoduo and ByteDance’s Douyin.

“Taobao and Tmall’s strong order and GMV growth is impressive given the challenges from competitors and market conditions,” said Jacob Cooke, CEO of e-commerce consultancy WPIC Marketing + Technologies.

The group reported revenue of 221.87 billion yuan in the three months ended March 31, compared with the consensus estimate of 219.66 billion yuan, according to LSEG data.

Analysts expect strong growth from Alibaba’s international digital commerce arm, given its investment in building global market share and appetite among global consumers for low-cost goods from China.

The segment delivered with 45% growth, compared to an expected 39% revenue increase, according to LSEG data. It also saw losses nearly double to 4.1 billion yuan ($567 million) from 2.2 billion a year ago as it invested heavily to remain price competitive and shorten delivery times.

The group’s other “core” business, its cloud division, saw AI-related revenue from external clients, a relatively new business, grow at triple digits year-on-year.

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