Key Points
- Alibaba missed Q1 revenue expectations due to sluggish domestic e-commerce sales amid China’s economic challenges.
- Domestic e-commerce revenue declined by 1% despite increased order volume.
- Intense competition from JD.com and discount platforms like Pinduoduo pressured margins.
- The company remains optimistic about future revenue growth through new monetization tools.
Alibaba Group Holding (9988.HK) reported first-quarter revenue that fell short of market expectations on Thursday. Its domestic e-commerce sales faced challenges due to cautious consumer spending in China’s struggling economy. The Chinese economy, which has been slow to recover, continues to be weighed down by a weak property market and high job insecurity, significantly dampening consumer confidence and spending power.
For the quarter ending June 30, Alibaba reported revenue of 243.24 billion yuan ($33.98 billion), missing analysts’ average estimate of 249.05 billion yuan, according to LSEG data. The company’s domestic e-commerce arm saw a 1% decline in revenue despite increased purchasers and the frequency of their purchases, which drove double-digit growth in order volume.
The e-commerce giant is also contending intense competition from rivals like JD.com and discount-driven platforms such as Pinduoduo, owned by PDD Holdings, and ByteDance’s Douyin. To stay competitive, Alibaba and its competitors have resorted to heavy discounting and promotions, putting pressure on profit margins across the retail sector.
“The spending slump in China is real. Consumers are spending less, downgrading purchases, and becoming more rational,” noted M Science analyst Vinci Zhang. “Going into the second half of the year, Alibaba and JD.com will likely continue to face challenges.”
June’s mid-year e-commerce sales festival, traditionally a major sales event in China, saw a decline in sales for the first time, according to third-party estimates, despite efforts by major platforms to extend offers and promotions.
However, on Thursday, Alibaba’s U.S.-listed shares rose about 2% in early trade after the company reported a quarterly profit that exceeded market expectations. Company executives have expressed optimism about future revenue growth, citing increased purchasing and the introduction of new tools for merchants that are expected to boost advertising and customer management revenue on the platform.
On a call with analysts, Alibaba Group CEO Eddie Wu emphasized that the priority for the company’s domestic e-commerce arm, Taobao and Tmall Group, has been improving user experience to enhance gross merchandise value (GMV), a key measure of sales. “As market share stabilizes, we can turn our focus to monetization,” Wu stated.
In March 2023, Alibaba announced a significant restructuring, splitting the company into six units to sharpen its focus on core businesses, including domestic e-commerce. The company’s international e-commerce unit saw a 32% rise in revenue to 29.3 billion yuan, driven by global demand for lower-priced goods from China.
Additionally, Alibaba’s cloud segment reported a 6% revenue increase to 26.55 billion yuan, up from 3% growth in the previous quarter. This growth fueled the increase in public cloud adoption and strong demand for AI-related products. The company has also scaled down low-margin project-based contracts and scaled up its cloud infrastructure, allowing it to reduce prices across its cloud products.
