China’s iconic tech firm barely weathered a tech crackdown in 2021, and 2022 could be just as bad
Beijing’s regulatory crackdown on consumer tech firms – which led to Alibaba’s $2.8 billion in results last year – resulted in fines, but rising economic headwinds for China will clearly be the top concern this year.
The Chinese e-commerce giant on Thursday reported a 9% year-over-year increase in revenue for the quarter ended March—the slowest growth since the company was listed in New York in 2014. Its adjusted net income fell 24% from a year earlier. Both were slightly higher than analysts’ estimates at S&P Global Market Intelligence.
Alibaba has not provided financial guidance for this fiscal year, which will end next March, as it usually does. It said that the company is not able to control or predict the risks and uncertainties arising out of COVID-19. China has taken tough measures over the past few months to limit the spread of the coronavirus, such as lockdowns in cities including Shanghai.
This has dealt a huge blow to the Chinese economy, especially since the housing market was already sluggish. Retail sales fell 11% year-on-year in April, the biggest drop since 2020. Revenue from Alibaba’s core e-commerce business on its Taobao and Tmall platforms was flat last quarter as the total value of goods sold on the platforms fell by the low single digits. from one year ago. The company said that gross merchandise sales in March fell due to the impact of Kovid-19. While Shanghai will gradually reopen, following China’s zero-Covid strategy will cloud the company’s prospects.
Alibaba’s margins have also shrunk as it invests in new initiatives to seek growth areas. Slow growth coupled with lower margins, however, may not be welcome news for investors. More buybacks haven’t helped either. Alibaba increased its share buybacks from $15 billion to $25 billion in March, but its stock has declined further since then.
Analysts have lowered their estimates for the company. According to S&P Global Market Intelligence, forecasts for operating profit for this fiscal year ending next March were cut by nearly half over the past 12 months. Revenue estimates were also reduced by 15%.
Alibaba has lost nearly three-quarters of its value since its peak in late 2020. Still, the pain may not be over for shareholders. As markets globally have shifted into a more risk-averse mode, Alibaba needs to show that it can still thrive—even in this post-pandemic, post-tech-crackdown world. In too.
Otherwise, the investors’ side will remain elusive.
Write Jacky Wong at [email protected]
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