E-Commerce Giant Alibaba Posts Leaps in Profit, Sales -- WSJ
21 August 2020 - 5:02PM
Dow Jones News
By Liza Lin and Dave Sebastian
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 21, 2020).
Chinese e-commerce giant Alibaba Group Holding Ltd. said its
fiscal first-quarter profit more than doubled from the same period
a year earlier, mirroring the results of U.S. tech giants that have
thrived as disruption from the coronavirus pandemic accelerated a
migration online.
Alibaba, China's most valuable technology company with an
already central position in Chinese society, reported net income of
47.6 billion yuan ($6.8 billion) for the quarter ending June as
more shoppers bought daily necessities and other products online.
Revenue rose 34% to 153.8 billion yuan, exceeding expectations of
148 billion yuan by analysts polled by FactSet.
Like its U.S. peer Amazon.com Inc., the Hangzhou-based
technology giant, which runs two of China's most popular e-commerce
websites, benefited as a shift in consumers' shopping habits became
more entrenched during widespread lockdowns due to the virus
outbreak. In the U.S., retailers of basic necessities and goods
such as Target Corp. and Walmart Inc. this week also reported sharp
jumps in their online sales.
Chinese consumers already make more purchases on the internet
than their global peers. Yet, the outbreak accelerated a move by
older consumers and those in smaller Chinese cities to shift their
buying from physical stores to online platforms, said Steven Zhu,
an analyst at research firm Pacific Epoch.
"The coronavirus has been good for Chinese e-commerce players,"
Mr. Zhu said. "Once you switch, you don't switch back."
China's economy rebounded from a contraction in the first three
months of 2020, growing more than 3% in the second quarter, making
it the first major economy to return to growth since the start of
the pandemic.
Still, Daniel Zhang, Alibaba's chairman and chief executive
officer, indicated that uncertainties from the pandemic as well as
a ramp-up in tension between the U.S. and China loom over the
company's operations.
In an investor call after the earnings report, Mr. Zhang said
Alibaba was closely monitoring the latest shifts in U.S. government
policies toward Chinese companies, calling it "a very fluid
situation."
Earlier this month, U.S. President Trump issued executive orders
barring companies and people in the U.S. from transactions with
Tencent Holdings Ltd.'s Wechat and Bytedance Inc.'s TikTok apps
starting Sept 20. President Trump has said he is considering
extending the ban to other Chinese companies.
Thursday's results mark a recovery from a tepid January-to-March
earnings quarter, when Alibaba's profits tanked as the pandemic
affected the value of its public investments. Earnings in that
quarter fell 88%. Beyond its retail marketplaces, the company also
runs a cloud services division and digital media platforms.
Alibaba, which counts more than 800 million monthly active users
on its mobile retail platforms, reported Chinese consumer spending
remains strong. China commerce retail sales grew 34% from a year
ago to 101 billion yuan.
"Our domestic core commerce business has fully recovered to
pre-Covid-19 levels across the board," Alibaba's Chief Financial
Officer Maggie Wu said Thursday.
As the coronavirus led to widespread city lockdowns earlier this
year, more Chinese consumers turned to e-commerce and their
platforms to buy fresh food and groceries online to cook at home,
Alibaba's CEO Mr. Zhang told investors in May. This helped offset a
drop in spending on clothing and cosmetics, he said.
In the June quarter, the company also benefited from a midyear
shopping festival for which it ran numerous marketing campaigns and
dangled promotions to encourage spending.
The company has also introduced new ways to market its products
to fight off competition from its rivals such as JD.com Inc.,
including live-streaming product demonstrations and sales
pitches.
Another bright spot for the Chinese technology juggernaut was
its loss-making cloud-computing division. Revenue in the segment
grew 59% to 12.3 billion yuan in the quarter as a growing number of
businesses ramped up efforts to digitize their operations.
Alibaba's digital media and entertainment unit also posted a 9%
rise in sales for the June quarter.
Adjusted earnings per American depositary share were 14.82 yuan.
Analysts polled by FactSet were expecting 13.82 yuan a share.
Analysts from JPMorgan Chase & Co. said in an August report
that geopolitical friction between the two major economies may
negatively impact the growth of Chinese internet companies such as
Alibaba, Tencent Holdings and NetEase Inc. in the mid-to-longer
term as they face hurdles to international expansion. Chinese
companies may divert their growth efforts inward instead, leading
to more aggressive competition and lower industry profits within
China, they wrote.
Geopolitical tension has already resulted in Alibaba closing the
Indian operations of its mobile browser UCWeb. Indian authorities
banned UCWeb products and dozens of other Chinese apps after a
border clash between troops from the two countries left 20 Indian
soldiers dead this month.
Mr. Zhang said on the call the closure wouldn't materially
affect Alibaba's financial performance.
Write to Liza Lin at Liza.Lin@wsj.com and Dave Sebastian at
dave.sebastian@wsj.com
(END) Dow Jones Newswires
August 21, 2020 02:47 ET (06:47 GMT)
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