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Alibaba Offers a Positive Signal Amid China’s Sagging Growth Alibaba Offers a Positive Signal Amid China’s Sagging Growth
(about 13 hours later)
SHANGHAI — Alibaba, the Chinese e-commerce giant, reported better-than-expected sales growth for the three months that ended in September, in a sign that the world’s largest group of consumers is still shopping online despite the country’s slowing growth.SHANGHAI — Alibaba, the Chinese e-commerce giant, reported better-than-expected sales growth for the three months that ended in September, in a sign that the world’s largest group of consumers is still shopping online despite the country’s slowing growth.
An e-commerce goliath and a symbol of China’s rising tech prowess, Alibaba has lately taken on a different significance to investors: a canary in the coal mine of China’s slowing economy.An e-commerce goliath and a symbol of China’s rising tech prowess, Alibaba has lately taken on a different significance to investors: a canary in the coal mine of China’s slowing economy.
China this month posted its slowest economic growth figures in three decades. The simmering trade war with the United States has hit the country’s exports and investments, while Beijing has kept banks from turning on the lending spigot to wean the country from its addiction to borrowing.China this month posted its slowest economic growth figures in three decades. The simmering trade war with the United States has hit the country’s exports and investments, while Beijing has kept banks from turning on the lending spigot to wean the country from its addiction to borrowing.
Chinese consumers, a powerful and growing source of spending that international companies like General Motors and Starbucks have come to rely on, have shown uncharacteristic signs of skittishness. Some young people say they are putting off spending on big-ticket items to prepare for what would be the first slowdown in their lives.Chinese consumers, a powerful and growing source of spending that international companies like General Motors and Starbucks have come to rely on, have shown uncharacteristic signs of skittishness. Some young people say they are putting off spending on big-ticket items to prepare for what would be the first slowdown in their lives.
Still, Alibaba has been able to shrug off signs of economic wear. It has prospered thanks in large part to an ever-expanding Chinese middle class, which turns to the internet to buy just about everything.Still, Alibaba has been able to shrug off signs of economic wear. It has prospered thanks in large part to an ever-expanding Chinese middle class, which turns to the internet to buy just about everything.
In an investor call, Daniel Zhang, the chief executive, acknowledged that “geopolitical uncertainties” put pressures on global growth, but added that Alibaba’s new challenge was to find “more opportunities in an uncertain environment.” In an investor call, Daniel Zhang, the chief executive, acknowledged that “geopolitical uncertainties” put pressures on global growth, but added that Alibaba’s new challenge was to find “more opportunities in an uncertain environment.”
“We see great potential in domestic consumption as an important driver for the Chinese economy,” said Mr. Zhang. He added that Alibaba has benefited as consumers have made up a larger portion of China’s overall economic growth, noting that retail sales in the first nine months of 2019 grew at a faster pace than the economy as a whole.“We see great potential in domestic consumption as an important driver for the Chinese economy,” said Mr. Zhang. He added that Alibaba has benefited as consumers have made up a larger portion of China’s overall economic growth, noting that retail sales in the first nine months of 2019 grew at a faster pace than the economy as a whole.
The company said Friday that its revenue had risen 40 percent, to $16.7 billion . Net profit more than tripled to $10.1 billion based on shifts in its investments, including a one-time gain of nearly $10 billion it recognized after receiving a one-third stake in Ant Financial, its online payment sister company. Without that gain, it said, its profit would have risen 30 percent compared with a year ago.The company said Friday that its revenue had risen 40 percent, to $16.7 billion . Net profit more than tripled to $10.1 billion based on shifts in its investments, including a one-time gain of nearly $10 billion it recognized after receiving a one-third stake in Ant Financial, its online payment sister company. Without that gain, it said, its profit would have risen 30 percent compared with a year ago.
Nevertheless, Alibaba has not been immune to China's slowdown. It is adding new users at a slowing rate, though some of that stems from a maturing market. Increasingly, Alibaba’s strong results have come from eking more money out of the vendors that rent virtual storefronts in the online bazaars it operates.Nevertheless, Alibaba has not been immune to China's slowdown. It is adding new users at a slowing rate, though some of that stems from a maturing market. Increasingly, Alibaba’s strong results have come from eking more money out of the vendors that rent virtual storefronts in the online bazaars it operates.
In the last quarter its total number of annual active customers ticked up by 19 million to a total of 693 million. The growth in active customers marked a considerable slowdown from the previous quarter.In the last quarter its total number of annual active customers ticked up by 19 million to a total of 693 million. The growth in active customers marked a considerable slowdown from the previous quarter.
The company’s shares rose more than 1 percent ahead of the market opening in New York, where the companys shares are traded.The company’s shares rose more than 1 percent ahead of the market opening in New York, where the companys shares are traded.
The next test of the Chinese consumer will come on Singles Day, the Nov. 11 sales event in China that Alibaba invented. For years the company has made use of the holiday as a way to generate headlines, and this year is expected to be no different. Taylor Swift and a bevy of Chinese pop stars have been hired to perform at a gala kicking off the holiday.The next test of the Chinese consumer will come on Singles Day, the Nov. 11 sales event in China that Alibaba invented. For years the company has made use of the holiday as a way to generate headlines, and this year is expected to be no different. Taylor Swift and a bevy of Chinese pop stars have been hired to perform at a gala kicking off the holiday.
Singles Day this year may serve as something of a checkup on the state of the Chinese consumer, though the diagnosis may not be easy to parse. Unlike Alibaba’s financial results, the company does not need to report Singles Day figures in ways that confirm with international accounting standards.Singles Day this year may serve as something of a checkup on the state of the Chinese consumer, though the diagnosis may not be easy to parse. Unlike Alibaba’s financial results, the company does not need to report Singles Day figures in ways that confirm with international accounting standards.
Alibaba, which makes its money by selling ads and taking commissions from the enormous number of businesses that sell on its websites and apps, has also worked to improve algorithms that help those businesses sell to consumers. It has also expanded its footprint, taking over companies like Ele.me, which handles food delivery orders, and pushing to expand into less developed parts of China to find new consumers.Alibaba, which makes its money by selling ads and taking commissions from the enormous number of businesses that sell on its websites and apps, has also worked to improve algorithms that help those businesses sell to consumers. It has also expanded its footprint, taking over companies like Ele.me, which handles food delivery orders, and pushing to expand into less developed parts of China to find new consumers.
“We also have noticed spending of new users from less developed areas reached about 2000 renminbi in their first year on our platform. This is a result of our diversified and comprehensive product supplies,” said Mr. Zhang.“We also have noticed spending of new users from less developed areas reached about 2000 renminbi in their first year on our platform. This is a result of our diversified and comprehensive product supplies,” said Mr. Zhang.
The internet company also has other ways to offset Chinese economic weakness. The company continued to see big growth in its business sector offering cloud computing services to businesses. Mr. Zhang said Alibaba estimated that internet companies spend 80 billion renminbi on information technology, while the public sector and other industries spend an additional 300 billion renminbi. Alibaba would work to gain a larger portion of that through its cloud business, he said. Revenue for cloud services grew 64 percent to 1.3 billion in the quarter.The internet company also has other ways to offset Chinese economic weakness. The company continued to see big growth in its business sector offering cloud computing services to businesses. Mr. Zhang said Alibaba estimated that internet companies spend 80 billion renminbi on information technology, while the public sector and other industries spend an additional 300 billion renminbi. Alibaba would work to gain a larger portion of that through its cloud business, he said. Revenue for cloud services grew 64 percent to 1.3 billion in the quarter.
Those businesses still have a way to go before they contribute to the company’s bottom line. Despite a big jump in revenue growth, the cloud business contributed only 8 percent of total revenue and remains unprofitable. Alibaba also faces pressure from well-funded competitors like Tencent, the Chinese technology conglomerate.Those businesses still have a way to go before they contribute to the company’s bottom line. Despite a big jump in revenue growth, the cloud business contributed only 8 percent of total revenue and remains unprofitable. Alibaba also faces pressure from well-funded competitors like Tencent, the Chinese technology conglomerate.
Still, those businesses may pay off in the long run, since many Chinese businesses have not yet made use of powerful computing resources that have become standard in other developed economies like the United States.Still, those businesses may pay off in the long run, since many Chinese businesses have not yet made use of powerful computing resources that have become standard in other developed economies like the United States.
“AliCloud is well positioned to capture this secular growth opportunity as it is one of the few companies that is capable of providing a suite of business solutions, instead of just a specific technology,” wrote analysts with the Japanese bank Nomura.“AliCloud is well positioned to capture this secular growth opportunity as it is one of the few companies that is capable of providing a suite of business solutions, instead of just a specific technology,” wrote analysts with the Japanese bank Nomura.