default-output-block.skip-main
BoF Logo

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.

Alibaba Sales Miss Estimates

While revenue rose 54 percent to $12.3 billion the company trimmed its annual forecast, underscoring the extent to which escalating tensions with the US are hurting the Chinese economy.
Source: Shutterstock
By
  • Bloomberg

HANGZHOU, China – Alibaba Group Holding Ltd. trimmed its annual forecast after quarterly sales missed estimates, underscoring the extent to which escalating tensions with the US are hurting the Chinese economy.

For the fiscal year ending March, the company is now predicting revenue of 375 billion yuan ($54.5 billion) to 383 billion yuan, equating to growth of as much as 53 percent versus the 60 percent it guided towards previously. Second-quarter sales came in 1.6 percent below analysts’ estimates.

While the US and China appear willing to discuss a deal of some sort, Alibaba co-founder Jack Ma has warned of longer-term conflict between the world's two largest economies. The trade war is starting to hurt the Asian nation, depressing the consumer spending that the online giant relies on to drive much of its growth. Domestically, it's grappling with a migration of smaller merchants to cheaper platforms such as JD.com Inc. and Pinduoduo Inc., both backed by nemesis Tencent Holdings Ltd.

“China’s e-commerce sector will feel the drag of the economy slowdown even more next year,” said Steven Zhu, an analyst with Pacific Epoch. “Platforms like Pinduoduo are charging much lower in commissions, posing significant competition to Alibaba.”

Heightening the uncertainty, Chinese regulators are clamping down on the country’s internet sector, reining in everything from gaming apps and travel sites to ride-hailing. That’s exacerbating already slowing growth in Alibaba’s business. The Hangzhou-based company is trying to counter that by stepping up its marketing services and investing in its own grocery stores and delivery to boost sales.

Alibaba’s closely watched customer management revenue, which includes the high-margin business of helping merchants with marketing, grew 25 percent — down a tad from the previous quarter’s 26 percent. Other divisions however remained humming — the cloud business grew 90 percent. Youku, its Netflix-style video service, more than doubled its average daily subscribers, while the international business — a relatively smaller piece of the pie — grew 55 percent.

Revenue at China’s biggest e-commerce company rose 54 percent to 85.15 billion yuan in the three months ended September. That compares with the 86.5 billion-yuan average of estimates compiled by Bloomberg. Adjusted earnings-per-share came to 9.60 yuan, compared with estimates for 7.43 yuan.

Shares of Alibaba gained 2.6 percent in pre-market trade, as stocks surged amid hopes China and the US might have possible terms of a trade deal to discuss this month. Its shares have slid 12.3 percent this year compared with a 3.5 percent loss for the NYSE Composite Index.

The reduced forecast comes as Alibaba ramps up for its annual Singles’ Day shopping festival, a litmus test of not just the company’s health but also China’s overall consumption. Chinese online retail sales growth is already slowing, to 24 percent in the third quarter from 36 percent in the second.

Chief executive Daniel Zhang, who succeeds Ma as chairman next year, will preside over the November 11 event as it broadens the shopping categories to include purchases made in affiliated shopping malls and food deliveries.

Alibaba faces “a soft quarter ahead on weak consumption and intensifying competition,” Wendy Huang, an analyst at Macquarie, said in a report.

By Lulu Yilun Chen; Editors: Robert Fenner, Edwin Chan.

In This Article
Topics
Organisations

© 2021 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.
CONNECT WITH US ON
Voices2021
© 2021 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions and Privacy policy.
Voices2021