Alibaba’s first sales miss in two years reveals toll of crackdown

(Bloomberg) — The revenue of Alibaba Group Holding Ltd. fell short of estimates for the first time in more than two years, underscoring how Beijing’s months-long campaign against the internet sector is taking its toll.

Growth slowed in most of Alibaba’s major divisions, from cloud to e-commerce, underscoring fears that the growing list of new government regulations is limiting expansion and increasing the burden on businesses. As a sign of the times, Chief Executive Officer Daniel Zhang on Tuesday approved a range of government policies enacted during a tumultuous 2021, from strict data collection restrictions to excessive subsidies. In particular, he expressed support for a six-month campaign launched last week by the internet industry regulator, which explicitly called for the blocking of rivals’ services.

Alibaba and nemesis Tencent Holdings Ltd. have long barred each other’s services from their platforms, creating so-called walled gardens. That gap helps perpetuate the empires of China’s two largest companies and is a major point of contention with regulators concerned about the growing influence of internet companies as it encourages merchants and startups to gravitate towards one or the other.

“We see cross-platform openness and connectivity as a positive trend that could bring greater benefits in the internet age,” Zhang told analysts.

Read more: Xi Jinping’s Capitalist Smackdown Leads to $1 Trillion Settlement

Shares of Alibaba fell more than 3% during early trading in New York. As one of the first Chinese internet giants to feel the Beijing heat, the company has been closely watched for clues to the real impact of the upheaval that has followed since regulators went 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 company is plowing money into areas like its bargain platform and community commerce to offset slowing growth, at a time when Pinduoduo Inc. and J.D. com Inc. eroding its dominance.

Revenue for the three months ended June rose to 205.7 billion yuan ($31.8 billion), compared to the average of 209.4 billion yuan according to analyst estimates. Net profit was 45.1 billion yuan, recovering from a loss in the previous quarter due to the record antitrust fine. The company announced Tuesday that it is ramping up its share repurchase program by 50% to $15 billion.

In the wake of the crackdown, Alibaba has taken tentative steps to contact Tencent, creating 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 WeChat Pay on Taobao and Tmall.

“If Tencent and Alibaba open up to each other, it will be like they’re both taking what they need,” said Shawn Yang, analyst at Blue Lotus Capital Advisor. “Alibaba will profit more because it is hungry for user traffic, more than Tencent to GMV. But how that will play out, no one knows yet.”

Technology sector oversight has expanded since Alibaba’s fine. The antitrust watchdog launched an investigation into Meituan in April and ordered 34 internet giants, including Alibaba and its units, to conduct internal assessments and rectify any excesses. In July, the cyberspace regulator stepped in with an investigation into Didi Global Inc. and remove its services from Chinese app stores after the US listing, extending the crackdown into the domain of data security.

Alibaba has lost more than $300 billion in market value since its October peak, just before its first public offering from affiliate Ant Group Co. was scrapped and the technical crackdown began in earnest. Ant’s profits fell to $2.1 billion in the March quarter after Chinese regulators told the company to review its sprawling operation.

Alibaba “enters an investment phase,” Daiwa analysts led by John Choi wrote in a recent research report. “Investments in Taobao deals and Community Marketplaces are likely to drive down core commerce EBITA. These are key investment areas for Alibaba to add 100 million new consumers in China by FY22.”

But resurgent pandemic risks in China, the first major economy to recover last year, have clouded the outlook for companies like Alibaba. The country is currently battling the largest coronavirus outbreak since the pathogen first emerged in late 2019.

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

Annual active consumers in its Chinese retail markets grew more slowly than expected to 828 million in the June quarter, generating a 35% increase in its trading activity. In total, the company, which is targeting 1 billion users in its home market by the end of 2021, had 912 million users in China. Customer management revenues rose just 14%, the weakest in at least three quarters, after Alibaba began combining commissions with the figure.

Cloud revenue rose 29%, slowing for the second consecutive quarter after a major customer pulled out. Bloomberg News previously reported that the client is TikTok owner ByteDance Ltd. Management told analysts Tuesday that the pullback will continue to drag cloud growth for the rest of this year, while new regulations for edtech companies are likely to curb their spending on internet services. .

Executives had pledged in the past quarter to channel all incremental gains into investments to focus back on their business. On Tuesday, executives pledged to support that strategy.

Alibaba last month combined its Ele.me food delivery app, Koubei local commerce platform, and its map and online travel business into a new lifestyle services division, a move that could help it better exploit Meituan’s dominance in those sectors. to dawn. As part of the changes, the company has also merged Tmall’s online shopping service with Alibaba’s cross-border trading business.

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