Alibaba grows 4% but misses estimates in June quarter

Alibaba Group Holding, one of China’s most influential tech giants, has reported a 4% growth in revenue for the second quarter of 2024, reaching 243.2 billion yuan ($34 billion). While the figure marks progress, the growth was lower than the 7% recorded in the previous quarter and fell short of analysts’ expectations, who had anticipated a further recovery driven by the 618 shopping festival and increased demand for cloud services.

Cloud performance remains a key driver for Alibaba. The cloud computing business reported revenue of 26.5 billion yuan, up 6%, and was highlighted as the online streaming partner for the Paris 2024 Olympics. This growth, however, failed to offset the company’s 29% drop in profits, which came in at 24.3 billion yuan, below estimates of 30.4 billion. Despite this backdrop, the company’s adjusted EBITA, a key indicator under non-traditional accounting principles, remained robust at 45 billion yuan, beating market expectations.

Alibaba CEO Eddie Wu expressed his optimism in a statement, noting that the company’s strategy is geared toward improving the user experience by offering quality products at competitive prices. This, he said, has allowed it to stabilize the market share of its flagship platforms, Taobao and Tmall, resuming a growth path. Regarding the cloud business, Wu highlighted the momentum generated by the adoption of products related to artificial intelligence (AI) and growth in the public cloud, assuring that Alibaba will continue to invest to maintain its leadership in this sector.

On the recent earnings call, CFO Toby Xu confirmed that the company will complete its dual primary listing in Hong Kong by the end of the month, an important step in Alibaba’s restructuring to strengthen its position in international markets. Wu, meanwhile, projected that Alibaba Cloud revenue, excluding consolidated subsidiaries, will return to double-digit growth in the second half of the fiscal year, which ends in March 2025. The goal is for various business units beyond e-commerce and cloud to become profitable within one to two years, contributing significantly to the overall results.

The 618 shopping festival, the second largest in China after 11.11, offered mixed signals on consumer sentiment amid an economic slowdown. Alibaba reported strong growth in gross merchandise value (GMV), though it did not disclose specific figures.

Alibaba and other foreign stocks suffer falls amid US recession fears

The macroeconomic backdrop in China has become more challenging, with GDP growth slowing to 4.7% in the second quarter and retail sales falling from 3.7% growth in May to 2% in June. Analysts such as Kenneth Fong of UBS have pointed out that product exchange campaigns promoted by many brands, rather than outright price cuts, have had a limited impact in stimulating consumption.

Against this backdrop, Alibaba has decided to focus on its core businesses, e-commerce and cloud computing, amid growing competition from rivals such as Pinduoduo and Douyin, the Chinese version of TikTok. The corporate restructuring, the largest in its 25-year history, reflects this approach. Since Wu took over as CEO in September last year, the company has promised to invest in revolutionary products, foster new businesses and find new sources of growth within a three-year window.

In terms of stock performance, Alibaba shares fell 2.4% to HK$76.4 in Hong Kong ahead of the results, though they are still up more than 3% year-to-date. Its core e-commerce unit, Taobao and Tmall, saw a 1% decline in quarterly revenue, reflecting a planned adjustment in its direct sales businesses to prioritise its third-party platforms. However, growth in GMV and order volume both showed gains in the high single digits, driven by improvements in user experience.

Alibaba’s Cloud Intelligence Group, which includes its AI business, also saw strong growth thanks to the adoption of public cloud and AI-related products. This development is crucial for the company as more than half of cloud growth was attributed to AI-based solutions, a trend that continues to rise despite the challenging economic environment.

The international business also stood out with a 32% increase in revenue, supported by the growth of the Lazada and AliExpress platforms. Lazada, in particular, achieved its first monthly profit in July, an important milestone in its expansion strategy in Southeast Asia. In the post-earnings call, Jiang Fang, head of the international digital commerce group, underlined the impact of supply chain and business model improvements on the growth of these platforms.