Alibaba boosts share buyback as revenue misses estimates (updated)

Haidilao International Holding

08/02/2024 02:28

(Updates to add Hong Kong shares set to open down in 3rd
paragraph)
    By Casey Hall and Savyata  Mishra
       SHANGHAI, Feb 7 (Reuters) - China's Alibaba Group
Holding  9988.HK  on Wednesday missed analysts' estimates for
third-quarter revenue, hurt by strong competition and faltering
economic recovery in the world's second-largest economy.
    U.S.-listed shares of Alibaba  BABA.N  fell nearly 6% as the
company's plan to buy back $25 billion of its stock failed to
drum up investor enthusiasm.
    Alibaba's  9988.HK  Hong Kong shares were down 5.4% early on
Thursday.
    The company is facing severe competition from rivals such as
Douyin and PDD Holdings  PDD.O , which have changed the
e-commerce landscape by selling lower-cost and discounted items
year-round.
    In the largest restructuring in Alibaba's 24-year history,
the company announced last March it would split into six units
to combat slower earnings growth. But just a few months later,
the plans for the spin-off and IPO for the cloud unit was
scrapped amid uncertainties over U.S. curbs on exports to China
of chips used in artificial intelligence applications.
    "Our top priority is to reignite the growth of our core
businesses, e-commerce and cloud computing," CEO Eddie Wu said
on Wednesday. Wu, group CEO since September, directly oversees
both the domestic e-commerce arm and Alibaba's cloud unit.    
    Alibaba's net income attributable to ordinary shareholders
was 14.4 billion yuan ($2 billion) and net income was 10.7
billion yuan, down 77% primarily due to valuation changes from
equity investments and impairments related to hypermarket
operator Sun Art and online video streaming service Youku.
    "They (Alibaba) indicated that 2024 will be an investment
year ... so the profitability will likely decrease because of
this," US Tiger Securities analyst Bo Pei said.
    Taobao and Tmall Group revenue grew only 2% for the quarter,
including year-end sales events such as Singles Day that have
traditionally provided a boost for the online shopping sites.
    Executives on a post-earnings call said there was early
evidence of a recovery in Taobao and Tmall Group's gross
merchandise volume or GMV.
    "Our strategy is focused on increasing purchasing frequency,
if we do that we will achieve better GMV growth," Wu said.
    Rival PDD, which owns Pinduoduo and overseas-focused
platform Temu, overtook Alibaba on Dec. 1 to become the most
valuable Chinese e-commerce company after Morgan Stanley
downgraded Alibaba on concerns over a slower turnaround in its
cloud business and customer management revenue.
    This quarter, executives also seemed cool about the
near-term potential of public offering prospects for its Cainiao
logistics and its grocery business Freshippo, saying these IPOs
had always been subject to market conditions which currently
were not in a state to reflect the intrinsic value of these
businesses.
    Last week, sources told Reuters that Alibaba was looking to
sell a number of consumer sector assets, including Freshippo,
which has been locked in a price war with Walmart's membership
chain  WMT.N  Sam's Club, leading both sides to cut prices on
popular items. 
    A Freshippo spokesperson has denied the reports of a
potential sale.
    On a call with analysts following earnings, Alibaba Chairman
Joe Tsai said it "makes sense" to exit some of the traditional
physical retail businesses on its balance sheet, "but it will
take time due to challenging market conditions". 
    Alibaba's International Digital Commerce (AIDC) arm, which
operates various retail and wholesale marketplaces including
AliExpress and Alibaba.com., performed strongly, with AliExpress
orders rising 60% on the year.
    "There is huge potential for AIDC to increase penetration in
many markets," the unit's chief executive, Jiang Fan, said on
the call with analysts. 
($1 = 7.1941 Chinese yuan)

 (Reporting by Harshita Varghese, Savyata Mishra and Casey Hall;
Editing by Himani Sarkar, Sriraj Kalluvila, Emelia
Sithole-Matarise, Louise Heavens, Elaine Hardcastle)
 ((Casey.Hall@thomsonreuters.com;))