It's been another torrid quarter for China's Alibaba as earnings plummeted amid a slowdown in consumer demand.
China's biggest e-commerce and cloud services player reported an 87% plunge in Q3 net income, with revenue and earnings both falling short of guidance. Alarmed at the signs of continued weakening in demand, investors in Hong Kong and New York marked down the stock.
Net income was 3.4 billion yuan (US$524 million), down from 26.5 billion yuan a year ago ($4.4 billion), despite 29% higher sales of 200.7 billion yuan ($31.4 billion).
Alibaba's stock on the Hong Kong exchange fell 10.3% to HK$140.00 on Friday. The share price has dropped by 38% since the start of the year.
Duck and dive
The company has been in Beijing's cross-hairs for the past year after a series of missteps. The government pulled the IPO of fintech affiliate Ant Financial and fined it a record $2.8 billion for abuse of market power, while high-profile former chairman Jack Ma has almost totally disappeared from public view.
In a statement, the company said the lower income was a result of higher investment in emerging operations such as Taobao Deals and Lazada, as well as increased support for merchants.
But it has also been caught by cooling consumer sentiment in China as well as the supply chain crisis.
This was signaled early this month during Alibaba's flagship annual double-11 shopping event, in which turnover increased just 8.5% over last year – the smallest rise in its 13-year history.
Thick cloud cover
In contrast to the core e-commerce businesses, Alibaba's cloud unit swung into the black as it continues to post good growth numbers.
Cloud revenue lifted 33% to 20.0 billion yuan ($3.1 billion), with strongest demand from the Internet, financial services and retail sectors, Alibaba said.
It recorded positive EBITDA of 396 million yuan ($61.9 million), compared to a 567 million yuan ($88.7 million) loss in 2020, a result of greater economies of scale, the company said.
CEO Daniel Zhang said cloud was one of Alibaba's growth engines, along with domestic consumption and international expansion, and the company would continue to invest heavily in each area.
The cloud business brought the opportunity to sell intelligent services in China and abroad, he said on an earnings call Thursday.
"It's not just the replacement of existing IT but instead because of the cloud you get new opportunities in intelligent services. You have new opportunities in 5G for not just cloud but also network terminal and edge. So we will get ourselves ready for all these opportunities."
Research firm Canalys says China's cloud infrastructure services market was worth $6.6 billion in Q2, up 54% over the previous year. Alibaba had 33.8% of the market followed by Huawei (19.3%) and Tencent (18.8%).
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— Robert Clark, contributing editor, special to Light Reading