ii view: Alibaba cloud growth offsets retail decline

First-quarter results to 30 June

• Revenue rose by 4% to 243.24 billion Chinese yuan ($33.47 billion)
• Net income or profit down 29% to 24.27 billion Chinese yuan
• Share buybacks totalling $5.8 billion

Chief Executive Eddie Wu said:

“Our results this quarter demonstrated our strategy at work. Our focus on enhancing user experience by offering quality products at attractive prices with great service led to stabilizing market share of Taobao and Tmall Group."

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ii round-up:

Chinese online retailer Alibaba Group Holding Ltd ADR (NYSE:BABA) today detailed sales and profit that missed analyst expectations as it continued to battle intense competition and a cautious Chinese consumer. 

First-quarter sales rose 4% to 243.24 billion Chinese yuan ($33.47 billion), leaving profit down 27% at 24.27 billion Chinese yuan year-over-year. Wall Street had expected sales of 249.05 billion yuan and profit of 26.91 billion yuan. 

Shares in the US listed retailer fell 2% in pre-market US trading having come into these latest results down up by a similar amount year-to-date. Amazon.com Inc (NASDAQ:AMZN) is up around 12% in 2024 and the broad S&P 500 index has gained 15%. 

Alibaba businesses include its Taobao (consumer-to-consumer) and Tmall (business-to-consumer) online selling sites as well as a cloud data hosting division.

Sales for the core Taobao and Tmall businesses, and now competing hard against rivals such as Temu owner PDD Holdings Inc ADR (NASDAQ:PDD), fell 1% year-over-year to 113.4 billion Chinese yuan ($15.6 billion). 

Revenue at the cloud business climbed 6% to 26.5 billion yuan, aided by its customers increasing adoption of AI-related products or software. Two-thirds of national broadcasters used live signals transmitted by Alibaba Cloud during the Paris Olympics. 

Elsewhere, sales at its international digital commerce business gained by a third to 29.3 billion yuan. 

Share buybacks during the period totalled $5.8 billion. Second-quarter results are likely mid-November.  

ii view:

Started in 1999, Alibaba today provides the technology infrastructure and marketing reach to help merchants, brands, retailers and other businesses engage with their users and customers and operate more efficiently. Coming to the US stock market in 1999, it employs over 200,000 people. As well as other Chinese retailers listed in the US like JD.com Inc ADR (NASDAQ:JD), its cloud operation also rivals those run by Amazon, Microsoft Corp (NASDAQ:MSFT) and Google owner Alphabet Inc Class A (NASDAQ:GOOGL).  

For investors, the tough economic backdrop for Chinese consumers cannot be ignored and competition within the retailing area is intense. The West’s strained relationship with China following Russia’s war in Ukraine warrants consideration, as does China’s own regulatory environment and the mix of communism with capitalism. 

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On the upside, Alibaba’s exposure to Chinese consumers remains significant. Diversity of business types includes its cloud data hosting business and potential growth of AI services. Share buybacks are being executed, while a forecast dividend yield of 1.6% compares to no dividend at Amazon currently.  

On balance, and while some caution looks sensible, a consensus analyst estimate of fair value above $100 per share suggests optimism on Wall Street regarding prospects. 

Positives

• Exposure to potential Chinese economic growth
• Relatively new chief executive

Negatives

• Regulatory uncertainty
• Currency moves can hinder performance

The average rating of stock market analysts:

Buy