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China’s Alibaba Group Holding reported an 86% plunge in fourth-quarter profit on Tuesday, primarily due to valuation changes from equity investments.
This significant drop pushed its U.S.-listed shares down 3% in premarket trading, although the company’s revenue surpassed analysts’ estimates.
Boost in Domestic E-Commerce Sales:
Despite the drop in profit, Alibaba’s focus on low-cost goods in response to cautious consumer spending has helped boost domestic e-commerce sales. This strategic shift appears to be yielding positive results in the home market.
Plans for Dual-Primary Listing in Hong Kong:
Alibaba announced it would revive a plan that first floated in 2022, to upgrade its secondary listing in Hong Kong to a primary listing while retaining its primary listing in New York. The company aims to complete this dual-primary listing by August, hoping it will provide Chinese investors with greater access to Alibaba shares.
The company has had a tumultuous year since announcing the biggest shake-up in its 25-year history in March last year. This restructuring involved splitting into six units and refocusing on its core businesses, including domestic e-commerce.
Economic Challenges in China:
Chinese consumers have been spending cautiously after the COVID-19 pandemic amid an economic slowdown and property slump. These economic challenges have impacted consumer behavior and spending patterns.
Financial Performance Overview:
Alibaba’s net income in the March quarter was 3.27 billion yuan ($452 million), a stark contrast to the 23.52 billion yuan reported a year ago.
According to LSEG data, the company reported revenue of 221.87 billion yuan for the three months ended March 31, surpassing the consensus estimate of 219.66 billion yuan.
Domestic Commerce Growth:
Alibaba’s domestic commerce arm, Taobao and Tmall Group, saw a 4% year-over-year growth, with order volume increasing double-digit. “Our strategies are working, and we are returning to growth,” CEO Eddie Wu told analysts.
International Digital Commerce Performance:
Analysts anticipated strong growth from Alibaba’s international digital commerce arm due to its investments in building global market share and the global demand for low-cost goods from China.
The segment delivered 45% growth, exceeding the expected 39% revenue rise. However, it also saw losses nearly double to 4.1 billion yuan ($567 million) from 2.2 billion yuan a year ago, as it invested heavily to remain price competitive and shorten delivery times.
Cloud Division Developments:
Alibaba’s cloud division announced last month that it would cut prices by as much as 59% for products powered by its offshore data centers amid rising competition to attract artificial intelligence software developers.
According to the earnings report, AI-related revenue from external customers, a relatively new business, grew at triple digits year-on-year.
