Alibaba's slowing sales spook investors after Ant's aborted IPO

HONG KONG • Alibaba Group Holding's revenue grew at its slowest pace on record for a September quarter, underscoring how the e-commerce giant's post-pandemic rebound is starting to plateau.

Asia's largest corporation reported a 30 per cent rise in sales in the September quarter, in line with expectations but down a tad from the previous three months.

That did little to reassure investors worried about the tightening regulatory scrutiny that forced Mr Jack Ma's Ant Group to call off its US$37 billion (S$49.85 billion) initial public offering (IPO).

Chief executive Daniel Zhang would only say Alibaba is evaluating the impact on its business from more stringent rules governing its 32 per cent-owned sister company.

Alibaba's shares sank as much as 4.3 per cent in early Hong Kong trading yesterday, extending a volatile streak that began with a sell-off of more than US$60 billion earlier this week.

The company enjoys a close relationship with Ant, whose Alipay mobile wallet anchors the majority of Alibaba's e-commerce transactions and whose microlending services drive consumption.

In response to a question about the extent to which Ant loans lead to online shopping, executives said the company does not quantify that traffic.

"As Ant Group's major shareholder, Alibaba is actively evaluating the impact on our business in response to the recently proposed changes in the fintech regulatory environment, and will take appropriate measures accordingly," Mr Zhang told analysts on a conference call.

Alibaba booked almost 4.7 billion yuan (S$957.3 million) of profit from Ant in the September quarter, a big chunk of its overall bottom line.

The e-commerce giant reported revenue for the three months ended September of 155.1 billion yuan, meeting the 154.8 billion yuan average of estimates. Profit fell 60 per cent to 28.8 billion yuan from a year earlier, when it booked a one-time gain from the acquisition of its stake in Ant.

Alibaba had benefited from stronger sales in its home market, which had led the global recovery from Covid-19. Gross domestic product grew 4.9 per cent last quarter, making China the world's only major growth engine.

The e-commerce titan is banking on more than a quarter of a million brands, increased discounting and technologies like live-streamed selling to draw consumers to its annual blockbuster Singles' Day shopping festival, which culminates next week.

  • 30%

    Rise in Alibaba Group Holding's sales in the September quarter.

  • 155.1b yuan

    The e-commerce giant's reported revenue, which is about S$31.6 billion, for the three months ended September.

"The performance of Singles' Day might be a more important benchmark to look at, rather than the third-quarter result," said Mr Steven Zhu, a Pacific Epoch analyst. "E-commerce is the only sector that will actually benefit from coronavirus, simply due to the fact that a lot of normal consumption is shifted from offline to online."

Alibaba's shares have gained more than 60 per cent from their Covid-era lows in March and touched a record high last month when Ant priced its IPO. Retail and institutional investors had flocked to the record US$35 billion-plus IPO, betting that Ant would overcome high valuations, regulatory headwinds and rising competition to reshape the future of global finance.

Excluding the Covid-hit March quarter, the 29 per cent increase in Alibaba's core commerce business was the slowest in more than five years as consumers put off purchases ahead of Singles' Day. The closely watched customer management revenue for China commerce rose 20 per cent in the quarter. Core commerce should expand at a compound annual growth rate of 23 per cent from next year to 2023, CGS-CIMB analysts wrote.

Revenue for Alibaba's cloud division jumped 60 per cent in the quarter, driven by demand from customers in the Internet, finance and retail industries.

The unit is forecast to turn profitable for the first time in the year ending next March, a target that was reiterated by chief financial officer Maggie Wu on Thursday. It will be a milestone for the decade-old business, which competes with the likes of Amazon Web Services, Microsoft and Google globally and is fending off upstarts like Tencent Holdings at home.

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A version of this article appeared in the print edition of The Straits Times on November 07, 2020, with the headline Alibaba's slowing sales spook investors after Ant's aborted IPO. Subscribe