Alibaba Group Holding failed to meet analysts’ expectations for its quarterly sales, citing ongoing economic uncertainty in China that has dampened consumer spending. The e-commerce giant’s revenue for the second quarter ended September 30 reached 236.50 billion yuan (US$32.72 billion), falling short of the projected 240.17 billion yuan, according to LSEG data.
Despite the revenue miss, Alibaba reported an adjusted profit of 15.06 yuan per American Depository Share (ADS), surpassing market estimates of 14.88 yuan per ADS. This profit beat drove a 3.3% increase in its US-listed shares during pre-market trading.
Chinese consumers have curtailed spending on discretionary items, reflecting the broader challenges in the world’s second-largest economy. Persisting issues such as the property sector crisis, sluggish GDP growth, and youth unemployment have significantly reduced consumer confidence.
This weakened sentiment has had a cascading effect on retail sales, even as companies like Alibaba and rival JD.com implement heavy promotions and discounts. JD.com also failed to meet its revenue expectations for the quarter, underlining the widespread impact of economic headwinds on China’s retail sector.
Alibaba faces stiff competition from emerging discount-focused platforms like Pinduoduo, owned by PDD Holdings, and ByteDance’s Douyin, which leverage ultra-low prices to attract budget-conscious shoppers. These platforms have gained significant traction by offering steep discounts on everything from electronics to clothing, challenging Alibaba’s dominance in the domestic e-commerce space.
While Alibaba’s core e-commerce operations have faced challenges, its Cloud Intelligence division demonstrated resilience, reporting a 7% rise in revenue to 29.61 billion yuan. This growth was driven by the increasing adoption of artificial intelligence (AI) technologies, as highlighted by CEO Eddie Wu.
“Growth in our Cloud business accelerated from prior quarters, with revenues from public cloud products growing in double digits and AI-related product revenue delivering triple-digit growth,” Wu said.
The international e-commerce segment also emerged as a bright spot, with revenue surging 29% to 31.67 billion yuan. Demand for affordable Chinese-made goods has expanded globally, helping Alibaba offset some of the losses in its domestic market.
Alibaba participated in China’s annual Singles’ Day sales, a key indicator of consumer sentiment. The extended promotional period this year, spanning from October 14 to November 11, led to a 26.6% rise in sales across major e-commerce platforms, according to data provider Syntun.
While Alibaba did not disclose its total sales figures, the company highlighted significant milestones, noting that 45 brands, including Apple, Haier, Midea, and Xiaomi, each surpassed 1 billion yuan (US$138.62 million) in gross merchandising value (GMV) during the event.
To counter slowing domestic growth, Alibaba has been doubling down on improving the user experience on its flagship platforms, Taobao and Tmall. It has also been heavily investing in its 88VIP loyalty program, which offers exclusive promotions to its 46 million members. The program is part of Alibaba’s strategy to retain high-value customers and drive repeat purchases amid increasing competition.
In a notable development, Alibaba completed a three-year regulatory “rectification” process this quarter, following the record US$2.75 billion antitrust fine it faced in 2021. The State Administration for Market Regulation (SAMR) confirmed the resolution of these issues, signaling the end of a period of intense regulatory scrutiny.
Although Alibaba has demonstrated resilience in certain segments, the broader challenges in the Chinese economy are likely to weigh on its performance in the coming quarters. Key concerns include:
- Domestic Retail Weakness: With consumers remaining cautious about discretionary spending, Alibaba’s core e-commerce operations are under pressure.
- Rising Competition: Rivals like Pinduoduo and Douyin continue to gain market share by appealing to cost-conscious shoppers.
- Economic Uncertainty: Broader macroeconomic challenges, including China’s property crisis and youth unemployment, present ongoing risks to consumer sentiment.
- However, Alibaba’s international and cloud businesses offer promising growth opportunities. The company’s focus on innovation, loyalty programs, and global expansion may help it navigate the uncertain economic environment.
