Alibaba posts stagnant growth, hit by China’s pandemic control measures

Chinese e-commerce company Alibaba Group Holding Ltd. reported lackluster sales growth in the October-December quarter, underscoring the financial toll of Beijing’s heavy-handed Covid-19 control regime and pressure from competition.

On a call with analysts, chief executive Daniel Zhang said he sees 2023 as a breakthrough year for the company, which is also emerging from a two-year regulatory crackdown.

Alibaba’s quarterly revenue rose 2% from a year earlier to the equivalent of $35.9 billion, slower than the 3% expansion in the previous quarter, the company said Thursday.

Net income attributable to common shareholders was $6.8 billion, an increase of 69% from the same period a year earlier. Alibaba’s net profit was hampered a year earlier, \ in part because of goodwill impairment related to its digital media and entertainment segment.

A person walks past a sign at the headquarters of Alibaba Group Holding Ltd. in Hangzhou, China, May 8, 2021. (Qilai Shen/Bloomberg via Getty Images)

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While revenue results were largely in line with projections, net income came in above analysts’ expectations. After rising in premarket trading, Alibaba shares were flat in mid-morning trading in New York.

At the end of last year, widespread lockdowns and other pandemic control measures dampened consumer spending. Beijing ended its zero-Covid policy in December. Around that time, infections spiked across the country and affected businesses.

In December, retail sales – a proxy for domestic consumption – fell 1.8% from a year earlier, according to the National Bureau of Statistics.

After China’s economy grew by 3% in 2022, economists expect a consumer-led recovery this year. But spending may be slow to rebound, some economists say.

Mr. Zhang said on the call with analysts that he expects consumer sentiment and economic activity to recover this year.

“While different businesses across our complex ecosystem face their own unique circumstances, we remain confident in our three key strategic pillars of consumption, cloud computing and globalization,” said Mr. Zhang.

During the Christmas quarter, Alibaba doubled down on cutting costs in its loss-making businesses. The number of companies fell by more than 4,000 workers in the Christmas quarter. All told, Alibaba lost 7.5% of its workforce during 2022.

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An advertisement promotes Alibaba’s Singles Day shopping festival, following the outbreak of the coronavirus disease (COVID-19) in Shanghai, China, Oct. 22, 2022. (Reuters/Aly Song/File Photo)

Chief Financial Officer Toby Xu said the company will increase investments in large businesses as it continues to “improve operational efficiency” in 2023.

The company bought back $3.3 billion worth of shares in the December quarter. Under its existing share buyback program, the company has a remaining quota of $21 billion to deploy and will not extend it at this point, Mr. Xu said.

Recently, regulatory pressure on Alibaba and its affiliate Ant Group Co. has eased. In January, Alibaba co-founder Jack Ma relinquished control of Ant, and China’s central bank said the turnaround of Ant’s business was complete, ending a turbulent period for the fintech giant.

Jack Ma, the billionaire founder of Alibaba Group, arrives at the “Tech for Good” Summit in Paris, France May 15, 2019. (Reuters Photos/Charles Platiau/Reuters)

Still, China is keeping a tight leash on tech companies. Recently, the Chinese authorities acquired a stake in a subsidiary of Alibaba.

Weighing Alibaba is competing in its main domestic e-commerce business. Competitors JD.com Inc. followed. and Pinduoduo PDD Holdings Inc are chipping away at Alibaba’s market share. Short video platforms, including ByteDance Ltd.’s Douyin and Kuaishou Technology, are a challenge.

China’s e-commerce sales of physical goods rose 12.9% year over year in the fourth quarter, according to Wall Street Journal calculations of government data.

Losses in Alibaba’s commission and advertising revenue from sellers, a key performance metric for its bread-and-butter domestic e-commerce, widened to 9% from 7% for the previous quarter, in line with analysts’ expectations. The company said the decline was down to sales on its flagship platforms Taobao and Tmall.

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Alibaba’s international business revenue increased 18% in the December quarter. Mr. Zhang reiterated the focus markets for the company’s global e-commerce business: Southeast Asia and Europe. Its Lazada unit competes directly with Shopee Sea Ltd. in Southeast Asia. Its international shopping site AliExpress faces competition from fast-fashion giant Shein and six-month-old American subsidiary PDD Temu.

The growth momentum of Alibaba’s cloud business has slowed as its clients’ budgets have tightened.

Late last year, Mr. Zhang took on the role of acting president of Alibaba Cloud in addition to his role as Alibaba chief executive, signaling the company’s emphasis on the cloud business.

Alibaba, like other Chinese technology companies looking to capitalize on the popularity of ChatGPT’s artificial intelligence generation technology, is internally testing a large language model similar to ChatGPT.

Mr. Zhang said on the call that Alibaba is well positioned to provide computing power needed for large language models. “We must not fail to seize and take advantage of this vital, historic opportunity,” he said.

Alibaba’s quarterly revenue in its reported currency was 247.8 billion Yuan, and its net income attributable to ordinary shareholders was 46.8 billion yuan, based on the exchange rate of about 6.9 yuan to the dollar used by Alibaba.

The logo of Ant Group, an affiliate of Alibaba, is seen at the company’s headquarters in Hangzhou, Zhejiang province, China, October 29, 2020. (Reuters/Aly Song / Reuters Photos)

Ant Group recorded an estimated net profit of 3.05 billion yuan in the quarter ended Sept. 30, slipping 83% from the same period a year earlier, according to calculations by The Wall Street Journal, based on Alibaba’s earnings. That’s a faster decline than the 63% year-over-year decline in the quarter ended June 30. Alibaba owns a third of Ant and reports its one-quarter profit share in arrears.

The drop in Ant’s profit was mainly due to a decline in the valuation of certain overseas equity investments, which resulted from changes in capital market conditions, according to Alibaba’s disclosure.

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Rebecca Feng contributed to this article.