Alibaba takes step towards comeback as growth finally returns

Hong Kong - Alibaba Group Holding returned to growth across all its main divisions, defying China’s economic turbulence to take a first step towards a long-awaited comeback after more than a year of malaise.

China’s online shopping leader, a proxy for the country’s consumer demand, reported a better-than-expected 14 per cent rise in revenue during a quarter when the world’s No. 2 economy struggled to gain momentum after years of zero-Covid restrictions. Its shares rose as much as 3.9 per cent in Hong Kong on Friday.

The strong showing marks a step towards the revival of a national icon grappling with a post-Covid-19 consumption funk, up-and-comers like PDD Holdings and the lingering effects of China’s blistering crackdown on the private sector.

Alibaba drove that expansion while cutting costs 6 per cent, helped in part by a 3 per cent reduction in its workforce, or more than 6,500 people. 

Alibaba, which along with Tencent Holdings and Baidu is credited for creating China’s Internet industry, now needs to win over investors to effect a complicated overhaul that will split the company six ways. 

For now, the results provide a solid foundation for Alibaba co-founders Joseph Tsai and Eddie Wu as they take over leadership of the company from Mr Daniel Zhang in September.

Alibaba’s cloud division reversed its decline in the quarter, and the overseas arm that includes Singapore-based Lazada and Trendyol expanded revenue 41 per cent.

Its core domestic commerce division – which now excludes certain marginal segments – chalked up its first sales rise in more than a year. 

“We view the solid revenues and profit beat delivered in the first quarter of financial year 2024 as what the Street has been waiting for,” Citigroup analysts led by Alicia Yap wrote. “Most investors had expected an okay quarter, but the magnitude of the outperformance, especially on the profit beat, likely has exceeded most expectations.”

Alibaba reported revenue of 234.16 billion yuan (S$44 billion) for the June quarter versus an average projection of 223.75 billion yuan. Net income rose about 50 per cent to 34.3 billion yuan, also beating estimates.

Investors are waiting for more details on the spin-offs, including grocery arm Freshippo, the AWS-like cloud business and Cainiao logistics.

In the June quarter, the cloud business returned to growth, with revenue inching up 4 per cent, while Chinese retail e-commerce revenue surged 13 per cent.

The numbers “showed promising early results of our reorganisation, which is beginning to unleash new energy across our businesses”, Mr Zhang, who officially steps down in September, told analysts on a conference call.

China’s largest tech companies Alibaba and Tencent have gained some US$70 billion (S$94 billion) of market value since May’s end, propelled by expectations of a gradual return to the consistent double-digit growth they enjoyed before Beijing launched a regulatory assault against its biggest private companies in 2020.

Driven by a need to rejuvenate the world’s No. 2 economy, President Xi Jinping has in recent months led party cadres and state media in proclaiming Beijing’s support for a sector wracked by two years of unpredictable diktats.

In July, Beijing signalled it is ready to unfetter the sector when it wrapped up a probe into the Mr Jack Ma-backed Ant Group Co.

Yet some investors warn the celebration may be premature.

Chinese policymakers have stopped short of providing direct, major fiscal or policy support for businesses, and consumer spending remains muted thanks to a subdued outlook for wages and record-high youth unemployment.

Profit margins remain under pressure amid rising competition from upstarts that mostly escaped the brunt of the crackdown such as ByteDance and PDD.

Alibaba and Tencent cut more than 20,000 jobs between them in 2022 to survive regulatory and economic turmoil.

They face a two-pronged assault: Rivals like Baidu and Meituan are vying for dominance of the Internet, thanks to the emergence of generative artificial intelligence.

Baidu has so far stolen much of their limelight in the post-ChatGPT race, debuting chatbot Ernie in March before launching into several iterations.

Abroad, ByteDance and PDD’s Temu continue to make strides, building on expansions that began when Alibaba and Tencent were forced to show restraint.

During the crackdown, companies including ByteDance’s TikTok and Temu revved up overseas forays for growth.

Despite rising geopolitical tensions, this generation of upstarts offer a template for older peers seeking to regain pre-crackdown heights.

“There’s uncertainties ahead of us on this road,” Taobao and Tmall chief Trudy Dai said. “But I think faced with all these uncertainties and potential volatility, the greatest certainty we have is the need to continue to grow our user scale and our merchant scale.” BLOOMBERG