Alibaba Group saw revenue come in flat in its first quarter—the lowest quarterly sales growth in its history—generating 205.56 billion yuan ($30.69 billion) on net income of 20.30 billion yuan ($3.03 billion) as Chinese consumers remained in lockdown in April and May.
The Chinese e-commerce marketplace, which operates a host of online selling platforms including Tmall and Taobao, beat consensus forecasts from Refinitiv, which anticipated a 1.2 percent revenue drop. Adjusted earnings per diluted American depositary share (ADS) came in at 11.73 yuan ($1.75), above the 10.39 yuan ($1.54) expected by Refinitiv.
In a Nutshell: A total of 9,241 employees left Alibaba during the June quarter, trimming headcount to approximately 245,700. That put the total decrease in employee numbers for Alibaba to 13,616 over the first six months of 2022, marking the firm’s first drop in payroll size since 2016.
Like Amazon in the U.S., Alibaba went on a massive hiring spree throughout the Covid-19 pandemic, with its total headcount more than doubling from 2019 levels to 251,462 in 2021. But the company has since felt the burden of a slowdown in shopping.
“The figures from the National Bureau of Statistics show that consumer spending as a percentage of disposable income in the first half of the year was 64 percent as compared against 69 percent in the previous year in 2021,” chairman and CEO Daniel Zhang said in an earnings call. “So that proportion has been down in the first half of the year and even more so in urban areas than in rural areas. And I think that’s an entirely normal reaction on behalf of consumers in terms of consumer sentiment in the context of the pandemic. So certainly, although we are seeing signs of steady recovery in consumption, I think it will take more time for that to fully play out and for consumer confidence and sentiment to fully recover.”
The e-commerce giant has never confirmed that it has been conducting layoffs, but a March Reuters report indicated that the company and fellow Chinese tech firm Tencent were prepping to cut “tens of thousands” of jobs in the wake of the government’s regulatory crackdown and the country’s slowing economy.
In April 2021, regulators fined Alibaba Group 18.38 billion yuan ($2.81 billion) after finding that the tech firm was practicing merchant exclusivity, essentially forcing sellers to choose between doing business with Alibaba’s platforms or a rival.
Alibaba chief financial officer Toby Xu said during the call that the company will continue to focus on “cost optimization and cost control” in the coming quarters. Xu said Alibaba is trying to find a balance between controlling costs and continuing to make investments for long-term growth.
Revenue from Alibaba’s China commerce retail business in the quarter was 136.98 billion ($20.45 billion), a decrease of 2 percent compared to 140.11 billion yuan in the same quarter of 2021.
The China commerce division was impacted most by customer management revenue (CMR), which decreased by 10 percent year-over-year to 72.26 billion yuan ($10.79 billion) from last year’s 80.40 billion yuan. CMR comprises 35 percent of Alibaba’s revenue, making it the largest portion for the company.
CMR’s decline was primarily because online physical goods gross merchandise value (GMV) generated on Taobao and Tmall, excluding unpaid orders, declined “mid-single-digit” year-over-year, and increased order cancellation due to the impacts from Covid-19’s resurgence and restrictions that resulted in supply chain and logistics disruptions in April and most of May.
In later May, as logistics capacity normalized, Alibaba saw a recovery in GMV, driven by a successful 618 Shopping Festival.
If there’s a silver lining for Alibaba, it is that the June quarter is expected to be the trough for the online titan. According to Refinitiv estimates, September quarter revenue is expected to grow 7 percent while the December quarter could see near 10 percent growth.
As of June 30, 2022, cash, cash equivalents and short-term investments were 453.19 billion yuan ($67.66 billion), compared to 446.41 billion yuan ($66.12 billion) as of March 31, 2022.
Net Revenue: Revenue was 205.56 billion yuan ($30.69 billion) and remained flat year-over-year from the 205.74 billion yuan generated in the June quarter of 2021. The stagnation was primarily due to a decline in China commerce segment revenue by 1 percent year-over-year to 141.94 billion yuan ($21.19 billion) offset by 10 percent year-over-year revenue growth in the Cloud segment to 17.69 million yuan ($2.64 billion).
In the quarter, revenue from its Cainiao logistics network, grew 7 percent to 17.29 billion yuan ($2.58 billion), primarily driven by the growth of fulfillment solutions and value-added services provided to its China commerce retail businesses, partly offset by declining revenue from merchants of its international commerce retail businesses.
International commerce, including Alibaba’s retail and wholesale businesses, grew 2 percent 15.45 billion yuan ($2.31 billion). The retail businesses including Lazada, AliExpress, Trendyol and Daraz declined 3 percent to 10.52 billion yuan ($1.57 billion), while wholesale increased 12 percent to 4.93 billion yuan ($736 million).
Local consumer services, which mainly includes location-based services, such as delivery company Ele.me, supermarket concept Taoxianda and digital mapping service Amap, generated 10.63 billion yuan ($1.59 billion), a 5 percent increase over the year-ago period.
Net Earnings: Net income at Alibaba Group attributable to ordinary shareholders was 22.739 million yuan ($3.4 billion) and net income was 20.30 billion yuan ($3.03 billion). Adjusted net income was 30.25 billion yuan ($4.52 billion), a decrease of 30 percent year-over-year, mainly due to a decrease in adjusted EBITA.
Income from operations was 24.94 billion yuan ($3.72 billion), a decrease of 19 percent year-over-year. Adjusted EBITA decreased 18 percent year-over-year to 34.42 million yuan ($5.14 million).
Diluted earnings per ADS was 8.51 yuan ($1.27) and diluted earnings per share was 1.06 yuan (16 cents). Adjusted diluted earnings per ADS was 11.73 yuan ($1.75), a decrease of 29 percent year-over-year and adjusted diluted earnings per share was 1.47 yuan (22 cents), a decline of 29 percent from the 2021 quarter.
CEO’s Take: “Starting in July, we are seeing gradual recovery of business performance compared to June, especially in a relatively more impacted category in the past few months such as fashion and electronics,” Zhang said. “As we continue to grow our location-based digital commerce infrastructure in recent years, our diversified business models are showing complementary benefits, for example, while certain discretionary categories on Taobao-Tmall were negatively impacted by the pandemic.