Alibaba shares rise as China's e-commerce market struggles

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Alibaba shares rise as China's e-commerce market struggles

- Alibaba Group Holding Inc. reported revenue that failed estimates, suggesting plans to raise spending in pursuit of growth have yet to gain traction.

Revenue for the three months ended June climbed from a year earlier to 205.7 billion yuan, compared with the average of 209.4 billion yuan by analyst estimates at the time of the departure. Net profit was 45.1 billion yuan, rebounding from a loss in the previous quarter following the firm's record antitrust penalty. The company announced it was expanding its share buyback program to $15 billion by 50%. In pre-market trading, Alibaba shares were up slightly.

Alibaba, among the first of China's edtech giants to feel the heat from Beijing, has been closely watched for clues to the real-world impact of the upheaval that followed regulations have China go after industries from online commerce to ride-hailing and edtech. Months after swallowing a $2.8 billion fine for violations such as forced exclusivity with merchants, Jack Ma's flagship e-commerce firm is plowing money into areas like its bargains platform and community commerce to offset slowing growth at a time when rivals like Pinduoduo Inc. and JD.com Inc. are eroding their dominance in China's e-commerce sales.

Alibaba is in an investment phase, said Daiwa analysts John Choi, led by Yahoo, in a recent research report. Investing in Taobao Deals and Community Marketplaces will likely add to the core commerce EBITA. Resurgent pandemic risks in China, which was the first major economy to recover last year, have clouded the outlook for companies like Alibaba. The country is currently facing its largest coronavirus outbreak since the pathogen first emerged in late 2019. But even before the recent spike in infections, the rebound in consumer spending was uneven. During the so-called January 18 shopping festival, total parcel delivery volume rose 24% across the country, half the year-earlier pace, according to data from the state post bureau.

Along with decreasing online retail sales, 'both Douyin and Kuaishou active joined the competition, Blue Lotus Capital Advisor analyst Shawn Yang wrote in an July note. 'Alibaba's strategy for 6.18 of this year is more on user retention and not GMV growth.

Alibaba forecast revenue growth of at least 30% for the 12 months ending in March, a deceleration from the 41% seen a year earlier. That prediction suggests that China's share of the e-commerce sales for the first time ever in 2021 will fall below 50%, industry researcher eMarketer said in a July 30 report.

Annual active consumers across its China retail marketplaces grew a slower-than-expected pace to 828 million in the June quarter, driving a 35% increase in its commerce business. The firm, which by 2021 would target 1 billion in its home market, had 912 million users in China across all businesses. The bread-and-butter customer management revenue climbed just 14%, the weakest in at least three quarters, after Alibaba started combining commission revenue with the figure.

Cloud revenue fell 29%, slowing for a second consecutive quarter after a major customer withdrew. Bloomberg News has previously reported that the client is TikTok-owner ByteDance Ltd.

The executive last quarter had pledged to channel all incremental profits into investment to refocus on its business, as Beijing's campaign to rein in its tech companies continues unabated. Alibaba joined the government to help a fledgling electronics seller Suning.com Co. bailout out, which raised its stake in the dismal electronics merchant. The corporation's cloud division also pledged $1 billion to support startups in Southeast Asia, while opening new data centers and innovation centers in Asia. In July, it also announced that it would become an anchor investor in a new HK $2 billion fund for startups in Guangdong-Macau region.

Alibaba Chairman Daniel Zhang said that the trajectories of Alibaba and China are inextricably connected. " Alibaba owes its growth and development over the last 20 years to society and to the era in which we belong.

Alibaba combined its Ele.me food delivery app, Meituan's local commerce platform as well as mapping and online travel business with a new lifestyle services division last month - move that could help it better challenge Ele.m Food Delivery to stand out in those sectors! As part of these changes, Alibaba also merged Tmall's online grocery service with Alibaba's cross-border commerce business.

Alibaba shares touched a 16 - month low last month as the government's crackdown spread to the internet education sector and more regulators including the Government-Bureau of Regulators stepped up scrutiny over the sector. The company lost more than $300 billion in market value from its October peak, just before Ant's initial public offering was scrapped and the tech crackdown began in earnest.

Scrutiny on the tech sector has expanded since Alibaba's penalty in May. The antitrust watchdog conducted an investigation into Meituan and directed 34 Internet giants, including Alibaba and its units, to carry out internal reviews and rectify any excesses. In July, the China cyberspace regulator entered the fray, announcing a probe into Didi Global Inc. and removing its services from Canadian app stores following its US listing, expanding the crackdown into the realm of data security.

The rules proposed last month also require virtually all firms seeking to go public in a foreign country to seek approval from the watchdog - a move that could affect Alibaba's investees. China's tough curtailment of private tutoring - including the ban on raising capital or going public - will impact the likes of Zuoyebang, an edtech startup backed by Alibaba. Then, alongside other platforms like Kuaishou Technology and Tencent Holdings Ltd.'s QQ service, the authority was ordered to remove accounts that spread sexually suggestive content including children.

In the wake of the crackdown, Alibaba has made tentative steps to open up its ecosystem, applying to make a mini app for its Taobao deals platform on Tencent's WeChat service, Bloomberg News reported earlier this year. The Wall Street Journal also reported that Alibaba is considering letting customers use Alibaba WeChat Pay to pay for purchases on Taobao and Tmall. The moves would represent a substantial concession to Beijing, as both companies have historically barred each other's services on their own platforms.

Having WeChat Pay imported into Alibaba's E-commerce platforms will add to pressure on affiliate Ant Group Co., which has been ordered by regulators to restructure into a financial holding company. Ant's profits fell to $2.1 billion in the March quarter after Chinese regulators thwarted its new-release record and told it to overhaul its sprawling operation.