Shares in United States-listed Alibaba Group Holdings (BABA) sank 7.5% overnight after the e-commerce and cloud computing giant reported a worse-than-expected quarterly result.
Citing slowing Chinese consumer spending and increased competition, the company's fiscal fourth quarter earnings missed on both the top and bottom line.
Revenue of 236.5 billion Chinese yuan ($32.6 billion) was up 7% year-on-year but failed to reach the expected 237.2 billion yuan.
Coming off a low base, net income of 12.4 billion yuan was 279% higher year-on-year, yet fell way short of the 24.7 billion analysts wanted.
What was conspicuous by its absence from this result was any evidence analysts were hoping for that the company’s investments in AI and its core e-commerce businesses would see the company hit or exceed their expectations.
Some of the losses incurred during the quarter, due to the disposal of some of its subsidiaries, were offset by an increase in income from operations and changes to valuations of its equity investments.
Key quarterly results
During the quarter Alibaba’s core Taobao and Tmall group divisions — the company’s China e-commerce business — saw revenue rise 9% to 101.4 billion yuan.
Customer management revenue, which Alibaba makes off selling marketing and other services to merchants on its platform, jumped 12% year-on-year.
Meanwhile, due to the adoption of AI-related products Alibaba’s cloud revenue totalled 30.1 billion yuan in the March quarter, up 18% year-on-year.
Headwinds and intense competition
Despite reiterating a confident business outlook, Alibaba is currently dealing with macroeconomic headwinds that have negatively impacted consumer sentiment in China.
Due to a prolonged property crisis and a cloudy economic outlook, Chinese shoppers have become increasingly cost-conscious, prompting deep discounts and rock-bottom prices to stimulate spending.
Also fuelling uncertainty in the world’s second-largest economy are U.S. President Donald Trump’s trade wars with Beijing, which have seen huge tariffs slapped from both sides during the latest quarter, Alibaba reported.
This has resulted in a price battle among China's largest online e-commerce platforms which pits Alibaba against PDD Holdings' (PDD.O), Pinduoduo and JD.com, in a fight for market share.
New initiatives
In light of intensifying competition over the last few months, the company has attempted to boost purchases on its Tmall and Taobao platforms by extending a partnership with Rednote, or Xiaohongshu, an Instagram-like service in China.
The deal allows Taobao links to be embedded in Rednote posts, which allows users to be taken directly to a product shopping page.
During an earnings call on Thursday, Alibaba management said it would be investing “aggressively” in its so-called “instant commerce” model.
In an attempt to differentiate itself from its rivals and drive more engagement on the platform, this is a feature - introduced on Taobao this month - that provides delivery of certain products in China within an hour.
Alibaba CEO Eddie Wu said AI-related product revenue achieved “triple-digit growth for the seventh consecutive quarter,” however, he did not specify the figure.
Wu expects a “significant growth track for revenue” for Alibaba’s cloud business over the next few quarters.
“We have quite strong confidence and conviction in that,” Wu told investors.
At the time of writing, Alibaba Group Holding Ltd - ADR's stock price (NYSE: BABA) was US$123.90, down $10.15 (7.57%) today, but after-hours was trading at $124.00, up 10 cents (0.081%). It has a market capitalisation of approximately $295.60 billion.
