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Alibaba Profits Plunge 88%, Still Passes $1 Trillion in 2020 GMV

Alibaba may have seen profits tumble 88 percent in its fourth quarter, but the Chinese e-commerce giant still beat forecasts for both income and revenues as online orders surged throughout the COVID-19 pandemic.

The company’s core commerce business, which includes online marketplaces Tmall, Taobao and Lazada, international retail site AliExpress, “New Retail” grocery chain Freshippo and Alibaba’s wholesale and logistics networks, rose nearly 19 percent to 93.87 billion yuan ($13.2 billion) in the quarter. The core commerce business still represents 82 percent of Alibaba’s total revenue.

For the full year, Alibaba saw total gross merchandise value (GMV) of $1 trillion, a first for the company.

In a Nutshell: All eyes were on Alibaba given that the company had been one of the first major global businesses severely impacted by the coronavirus pandemic. The substantial decline in business activities starting in late January in China negatively affected most of Alibaba’s domestic core commerce businesses in the final quarter, such as its China retail marketplaces and local consumer services businesses.

During the quarter, the GMV of physical goods sold on Tmall grew 10 percent year-over-year. Negative online growth in apparel and accessories, as well as other major categories including home furnishing and auto parts, offset growth of fast-moving consumer goods (FMCG), including daily necessities and household goods, and resilient demand for consumer electronics, which together grew approximately 25 percent year-over-year.

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Revenue growth at AliExpress, which sells products to international buyers, was significantly slower year-over-year, primarily due to supply chain and logistics disruptions that negatively impacted GMV growth from sales to North and South America and Europe.

Despite decelerating revenue growth across channels, more consumers continue to buy from Alibaba’s services. Annual active consumers on China’s retail marketplaces reached 726 million in the quarter, an increase of 15 million from the 12-month period ended Dec. 31, 2019. Annual active consumers participating in the global Alibaba digital economy, which includes international marketplaces, reached 960 million globally. Mobile monthly active users on China’s retail marketplaces reached 846 million in March, an increase of 22 million over December.

Although Alibaba said “it is not possible to determine the ultimate impact of the COVID-19 pandemic on our business operations and financial results, which is highly dependent on numerous factors,” the company did reveal that it expects revenue to top 650 billion yuan ($91.1 billion) for the 2021 fiscal year. This would make expected revenue growth approximately 27 percent over the next 12 months, a contraction from the 35 percent growth over the past year.

In a company earnings call, Alibaba Group chief financial officer Maggie Wu shared positive news surrounding the company’s first quarter start, noting that GMV, transaction volumes and user activity in Alibaba’s China retail businesses returned to levels seen in the October to December quarter.

Although Alibaba saw an 8 percent decline in revenue from its local consumer services businesses in the fourth quarter, volume growth for the company’s food delivery business swung back into positive territory during April.

Net Sales: Alibaba’s overall revenue rose 22 percent to 114.31 billion yuan ($16.02 billion) for the quarter, up from approximately 93.50 billion yuan ($13.11 billion) a year earlier. The growth beat Wall Street estimates, as analysts had expected revenue of 107.04 billion yuan ($15.01 billion), according to data from Refinitiv.

The company’s core commerce business, which represents 82 percent of Alibaba’s total revenue, rose nearly 19 percent to 93.87 billion yuan ($13.2 billion) in the quarter.

Sales in Alibaba’s cloud computing business grew 58 percent in the quarter from a year ago, while the digital media and entertainment segment revenue rose 5 percent. Last month, Alibaba announced plans to invest $28 billion over three years in its cloud infrastructure.

Total revenue for the full fiscal year was 509.71 billion yuan ($71.98 billion), an increase of 35 percent compared to 376.84 billion yuan ($52.85 billion) in fiscal year 2019.

Net Earnings: Alibaba reported net income of 3.16 billion yuan ($447 million) for the quarter ended in March, a profit total that fell 88 percent from the same period a year ago.

The decline was mainly due to a net investment loss of $1.09 billion as the pandemic weighed on stock markets and dented the value of Alibaba’s equity investments in publicly traded companies. When taking this into account, adjusted EBITDA increased 1 percent year-over-year to 25.44 billion yuan ($3.59 billion).

Earnings per American depositary share (ADS) were 1.16 yuan (16 cents) per share compared with 9.84 yuan ($1.38) per share a year earlier.

On an adjusted basis, earnings per ADS were 9.20 yuan ($1.29), well ahead of analysts’ expectations of 6.05 yuan (85 cents) per share.

For the full year, net income was 149.26 billion ($21.08 billion), an increase of 70 percent compared to the 87.6 billion yuan ($12.28 billion) generated in fiscal year 2019.

CEO’s Take: “Alibaba achieved the historic milestone of US$1 trillion in GMV across our digital economy this fiscal year,” said Daniel Zhang, chairman and CEO of Alibaba Group. “Our overall business continued to experience strong growth, with a total annual active consumer base of 960 million globally, despite concluding the fiscal year with a quarter impacted by the economic effects of the COVID-19 pandemic. The pandemic has fundamentally altered consumer behavior and enterprise operations, making digital adoption and transformation a necessity. We are well positioned and prepared to help large and small businesses across a wide spectrum of industries achieve the digital transformation they need to survive this difficult period and eventually prevail in the new normal. By focusing on the long term and investing in value creation for our consumers and business customers, we believe we will emerge from this crisis stronger and be ready to capture more growth in the future.”