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Alibaba’s Beyond Expectation Quarterly Results Still Face Lackluster Market Reaction
COVID-19 and China
Image credit: Alibaba official website

Alibaba (BABA: NYSE) announced its financial results for the quarter ended December 31, 2019. Revenue was CNY 161,46 million (USD 23,19 million), an increase of 38% year-over-year. Net income was CNY 50,13 million (USD 7,20 million). Though both numbers exceeded market expectations, the stock market spelled doom with a slash of 1.81% in the company’s closing price

Like all the other companies in China, Alibaba is confronted by the Wuhan coronavirus before the Spring Festival.

Based on what the company has seen since the early February, the company’s management disclosed on its earnings call that the company is facing a near-term challenge as there’s been a delay in employees’ return to work after the holiday. Therefore, a negative impact on the ability of merchants and logistics companies to resume business will be inevitable.

“Our overall revenue growth rate, we believe, will be negatively impacted for the March quarter,” said Maggie Wu, Chief Financial Officer of Alibaba.

Aside from the negative effect causing by the epidemic outbreak, Alibaba has been slowing down in revenue growth for the third consecutive quarter. To look at its revenue by segments, we observed that the core commerce remains strong in the company’s business. However, the combined revenue from customer management and commission, which represented over 59% of the total, was way below the average (38%) in their growth rate, reflecting an increase of 23% and 16%, respectively.

As its traditional e-commerce pillar business being sluggish, Alibaba will continue to face the challenges of business transformation in the coming future. Two business segments that have been carrying a rapid roll-out are cloud computing and new retail, projecting the fastest revenue increase rate of 62% and 128%.

Alibaba Cloud maintains its leadership position in China’s cloud computing market. Its business for the first time generated over CNY10 billion of revenue in a single quarter. Ite revenue grew 62% year-over-year driven by increased revenue contributions from both our public cloud and hybrid cloud businesses. Ahead of this year’s Double 11 Shopping Festival, it enabled the migration of the core systems of e-commerce businesses onto the public cloud, which is believed to generate greater operating efficiencies and will attract more customers to adopt the company’s public cloud infrastructure.

The new retail under the ‘Others’ segment of core commerce, is known for the self-operated grocery retail chain Freshippo (also known as ‘Fresh Hema’). It continues to achieve sales growth and reached 197 stores by the end of 2019 in first and second-tier cities in China. Moreover, Tmall launched a store-to-door business with Sun Art Retail Group, enabling a half-day delivery of food and daily necessities to consumers 3-to-20 kilometers to Sun Art’s stores. 

During the epidemic period, more Chinese people are ordering groceries from their homes and more employees are choosing to work from home. This digital transformation of lifestyle and work style will bring more opportunities for Alibaba’s new retail and cloud service. At least for now, the Freshippo sales soar during virus outbreak; and Dingding  – Alibaba’s online enterprise service platform – has welcomed more than 200 million users working remotely these days.

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