Chinese ecommerce giant Alibaba posted its first earnings report that showed flat revenue growth, but investors didn’t seem to care as its stock jumped 6% to end the day’s trading nearly 2% higher.
Alibaba’s quarterly earnings report showed that the brand enjoyed revenue of $30.4 billion which is about the same as this time last year. While the flat revenue growth may look disappointing, the company’s net income managed to exceed expectations and brought in $3.4 billion.
Although Alibaba remains unscathed from the earnings report, its earnings per American depositary share was down 29% year-on-year. Alibaba owns the hugely successful Tmall and Taobao online shopping sites and is widely expected to experience improved growth for the remainder of 2022.
Why Alibaba had a difficult quarter
There have been multiple factors why Alibaba has struggled over the past quarter. One of the key reasons is that there has been a resurgence in the number of Covid cases in several parts of China – including the financial center of Shanghai. Thankfully, there were modest signs of a recovery as the cities emerged out of lockdown in June. Still, it was evident that overall consumer demand and logistical problems hit Alibaba hard over the past quarter.
Beyond the pandemic, China’s authorities have also imposed a variety of tough regulations that affect Alibaba’s operations. It’s part of a trend that has been visible for over 18 months in which China’s technology sector has found itself at a level of much higher scrutiny. All of which could have contributed to SoftBank’s shock decision to sell over half of its Alibaba stock as was reported at the end of last week.
Alibaba will also have to be careful in how it operates in the US. This is because the US Securities and Exchange Commission placed the Chinese ecommerce brand on a watchlist last week. Such a move was made due to concerns that US-based auditors wouldn’t be able to inspect the required financial statements from Alibaba. If Alibaba fails to appease the regulators, it could see itself being kicked off Wall Street.
Can Alibaba get back on track?
While Thursday’s report may have made for underwhelming reading, Alibaba appeared to be turning the corner in June. This was largely due to improvements made in logistics, and the supply chain issues of early 2022 appeared to be easing.
As a result, Alibaba started to notice a gradual recovery in various sectors such as electronics and fashion in early summer. Such a positive move could be well-timed considering that Alibaba is expected to upgrade its Hong Kong listing towards the end of the year which means that more Chinese investors would be able to buy its stock.
The earnings report should also provide some positivity in that Alibaba’s cloud computing sector enjoyed a growth of 10% on the previous year. So while the overall picture might be confusing, Alibaba is expected to override the current storm.
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