Monday, 2024 June 17

Alibaba prepares investment spree as company looks past antitrust woes

Alibaba generated RMB 187.39 billion (USD 28.6 billion) in total revenue in its latest quarterly earnings announced Thursday, up 64% year-over-year (YoY), and exceeding market expectations of RMB 180 billion (USD 27.9 billion).

However, the March quarter wasn’t all positive, as the company also recorded a net loss of RMB 5.47 billion (USD 850 million) for the three months, while many analysts had expected a profit during the period. The company is embarking on a new round of investments to augment its existing offerings, targeting areas like supply chain, customer and merchant management, and other complementary sectors.

Alibaba added 32 million annual active customers to its marketplace platforms in China, bringing its total count to 811 million. Notably, 70% of these new users hail from rural areas and lower-tier cities. Alibaba has been revving up services in these locations to stem the rise of Shanghai-based rival Pinduoduo.

Moving past antitrust concerns

While it is still not certain whether the RMB 18.2 billion (USD 2.8 billion) fine from China’s State Administration for Market Regulation would spell the end of Alibaba’s regulatory headaches, the company’s CEO Daniel Zhang sought to assuage investor concerns. “We believe the best way to overcome these challenges is to look forward and invest for the long term to create value for our customers through technology and innovation and to solve major problems in society,” Zhang told investors on the earnings call.

“Therefore, we plan to invest all of our incremental profits in this coming year into core strategic areas such as technology innovation, support programs for merchants to lower their operating costs, user acquisition and experience enhancement, merchandising and supply chain capabilities, infrastructure development, and new business initiatives,” he added. The new investment strategy includes three main areas, including domestic consumption, globalization, and cloud and advanced technologies.

One initiative receiving more attention and resources is Taobao Deals, a more affordable e-commerce platform that reached over 130 monthly active users this past quarter since its launch in March 2020. Alibaba is also looking to build out its community grocery business, which the firm believes can succeed in a crowded market based on the strength of Alibaba’s service ecosystem.

“The community marketplace model is one of the essential ways to serve price-conscious consumers. This model can help us acquire new customers in low-tier cities and rural areas and further increase our users’ consumption frequency and the stickiness,” Zhang said.

Cloud dominance persists

Revenue generated from Alibaba Cloud grew 37% YoY to RMB 16.76 billion (USD 2.56 billion) during the March quarter, dominating the Chinese market for cloud services, as well as the Asia Pacific region more broadly, where it competes with Amazon Web Services.

“As a post-pandemic world is facing a massive opportunity for industrial digitization, cloud infrastructure will eventually replace IT infrastructure, empowering enterprises to achieve digital operation,” Zhang said, emphasizing his bullishness on the company’s cloud business, which has now been profitable for consecutive quarters.

Despite the solid results, Alibaba’s share price fell by 6.28% to USD 206.08 in Thursday trading following the earnings announcement.

Alibaba trades on the NYSE as BABA. Pinduoduo trades on the Nasdaq as PDD.

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