Alibaba posts 58pc gain in quarterly profit, warns coronavirus crisis will impact revenue growth

E-commerce giant Alibaba Group Holding expects new challenges ahead, as it warned of the potential negative impact of the coronavirus outbreak to the global economy. Daniel Zhang Yong, Alibaba’s executive chairman and chief executive, described those prospects after the company reported a 58 per cent increase in profit for the quarter ended December 31, boosted by the e-commerce giant’s record sales during Singles’ Day – the world’s largest shopping festival – in November. “The [coronavirus] outbreak is having significant impact on China’s economy, and may potentially affect the global economy,” said Zhang in an earnings call with analysts on Thursday. “It will present near-term challenges to the development of Alibaba’s business across the board.” While the company cannot accurately estimate the full financial impact of the health crisis to its business at present, there is currently weakness in its China retail platforms and local consumer services. “What we’ve seen, particularly in the past 12 to 13 days since the start of February, is that our overall revenue growth rate will be negatively impacted in the March quarter,” said Maggie Wu Wei, Alibaba’s chief financial officer. On Thursday, Alibaba reported revenue of 161.5 billion yuan (US$23.2 billion) in its fiscal third quarter, up 38 per cent from 117.3 billion yuan a year ago. That improvement was made on the back of steady growth at its core commerce and cloud computing businesses, despite a slowdown in the domestic economy and China’s protracted trade war with the United States. Net income jumped 58 per cent to 52.3 billion yuan in the same quarter, ahead of the 29.6 billion yuan consensus from analysts’ estimates compiled by Bloomberg. The financial results of Alibaba, parent company of the South China Morning Post, are seen by many investors as a proxy for consumer spending in China and an important barometer of the country’s economic health. The deadly coronavirus outbreak, however, may have some negative impact on China’s e-commerce market, the world’s largest. Government efforts to contain the spread of the virus have seen offline entertainment, commercial and transport activities across the country grind to a halt. Small merchants on various online retail platforms have been hit hard, as labour supply and logistics are constrained by government measures to restrict travel and lock down a number of communities. The health scare already dampened consumer spending during the Lunar New Year holiday. There were 59,804 confirmed cases of coronavirus and 1,367 fatalities from the disease officially known as Covid-19 in mainland China as of Thursday morning, according to the country’s National Health Commission. The virus has also spread to at least 24 countries. “We are closely monitoring the challenges as well as identifying opportunities for Alibaba’s business, as the situation evolves,” Zhang said. “For our e-commerce business, the delay in employees returning to work following the Spring Festival is preventing merchants and logistics companies from resuming operations.” Zhang said a significant number of packages were not being delivered to consumers on time because of the outbreak. The company’s food delivery orders have noticeably declined, as restaurants have not resumed operations, he said. Fliggy, Alibaba’s travel arm, has also seen many cancellations for air tickets, hotel reservations and tour packages. In response, Alibaba has started rolling out relief packages including service fee waivers, loans and other financial assistance as well as subsidies for online merchants during this period. “Seventeen years ago, the e-commerce business experienced tremendous growth after Sars,” Zhang said. “We believe that adversity will be followed by change in behaviour among consumers and enterprises.” He said people will adapt, changing the way they live and work during this health crisis. “More businesses and more consumers will have a digital life or digital working style,” he said. Some analysts also predict that Alibaba and other major Chinese online retail services providers will buck the odds and still do well amid the coronavirus crisis. “In 2003, [China] retail sales growth dipped 5 per cent in the worst month of Sars,” said David Dai, managing director and senior analyst for Asian internet research at AB Bernstein, in a report last week. “This time, we believe most of the decline will be captured by e-commerce,” said Dai, lead author of the report. “The shift from offline to online retail is likely to accelerate because of the epidemic, with opportunity for Alibaba, JD.com and Pinduoduo.” Alibaba reported a 38 per cent increase in its total core commerce revenue to 141.5 billion yuan in the December quarter. Hangzhou-based Alibaba, which started trading in New York in 2014, had a successful secondary listing in Hong Kong last November. Annual active consumers on Alibaba’s main China retail platforms, Taobao Marketplace and Tmall, reached 711 million in 2019. More than 60 per cent of new annual active consumers were from the country’s less-developed areas. The company’s cloud computing business for the first time generated revenue of more than 10 billion yuan in a single quarter. Cloud computing revenue grew 62 per cent to 10.7 billion yuan last quarter, driven by increased contributions from both so-called public cloud and hybrid cloud businesses. Purchase the China AI Report 2020 brought to you by SCMP Research and enjoy a 20% discount (original price US$400). This 60-page all new intelligence report gives you first-hand insights and analysis into the latest industry developments and intelligence about China AI. Get exclusive access to our webinars for continuous learning, and interact with China AI executives in live Q&A. Offer valid until 31 March 2020.