Alibaba shares rebound 6% after massive earnings beat
Alibaba said it was working on a rival to ChatGPT, the artificial intelligence chatbot that has garnered worldwide acclaim. Alibaba said its own product is currently undergoing internal testing.
Kuang Da | Visual Group China | Getty Images
Alibaba reported earnings for its fiscal third quarter that beat expectations, pushing the tech giant’s U.S.-listed shares up 6%.
here’s how Ali Baba did in its third fiscal quarter, which ran from October to December 2022, compared to Refinitiv consensus estimates:
- Revenue: 247.76 billion Chinese yuan ($35.92 billion) vs. 245.18 billion Chinese yuan expected, up 2% year-on-year;
- US Depository Earnings per share: 19.26 yuan vs. 16.26 yuan expected, up 14% YoY;
- Net income: 46.82 billion yuan against 34.02 billion yuan, up 69% year on year.
About $600 billion has been wiped from Alibaba’s value since its peak in October 2020, as a tougher regulatory environment on tech companies in China along with strict Covid-19 control policies – and the ensuing economic downturn – hit the e-commerce giant.
Shares of Alibaba in Hong Kong closed higher on Thursday ahead of earnings, as investors bet China’s economic reopening will help boost consumer sentiment and spending, which will ultimately help the e-commerce giant. In the December quarter, China abruptly ended its strict Covid controls such as lockdowns, although this is unlikely to be fully reflected in the quarter.
Meanwhile, China’s regulatory tightening of the past two years is beginning to ease, as enforcement becomes more predictable.
Revenue from Alibaba’s biggest business, the China trading division, which includes its popular marketplace Taobao, totaled 169.99 billion yuan, down 1% year-on-year. The drop was driven by a 9% year-on-year drop in customer management revenue, earned from services such as marketing that Alibaba sells to merchants on its Taobao e-commerce platforms and T mall.
Alibaba said gross merchandise volume — or the value of transactions on the company’s online shopping platforms — “decline in single digits year-over-year, primarily due to the weak consumer demand and continued competition as well as an increase in COVID-19 cases in China that led to supply chain and logistics disruptions in December.”
The company said it saw a rebound in China’s economy and consumption.
“Looking ahead, we expect a continued recovery in consumer confidence and economic activity,” Alibaba CEO Daniel Zhange said in a press release.
Amid slowing business in China, Alibaba has sought to expand into overseas markets through its Lazada subsidiary in Southeast Asia and via global e-commerce site AliExpress. International trade revenue rose 18% year-on-year to 19.47 billion Chinese yuan.
Analysts expect Alibaba to see faster revenue growth in the coming quarters as the full effect of the reopening of the Chinese economy is felt. Morgan Stanley named Alibaba its “top pick” in China’s tech sector for the first time in three years, in a recent note.
Increase in profitability
Last year, Alibaba took steps to controlling costs to improve profitability. The company is trying to balance costs and continues to make significant investments for long-term growth.
These efforts appear to be paying off with a 69% increase in net income year over year. The company’s operating margin was 14% in the December quarter, up from 3% in the same period last year.
Alibaba managed to cut losses across all of its businesses in the December quarter, including its logistics arm Cainiao and its cloud division.
“During the past quarter, we continued to improve operational efficiency and cost optimization, resulting in robust profit growth,” Toby Xu, Alibaba’s chief financial officer, said in a statement. press.
Alibaba’s workforce at the end of the December quarter was 239,740, a reduction of more than 4,000 from the previous quarter.
Cloud slowdown persists
Alibaba reported cloud revenue of 20.18 billion Chinese yuan in the third fiscal quarter, up 3% year-on-year. This marked a slowdown from the 4% increase in revenue seen in the previous quarter and remains far from the growth rates of more than 30% seen in the past.
Cloud computing accounts for just 8% of the company’s revenue but is seen by analysts as a future growth engine for the company.
Alibaba said it has also seen growth in non-internet industries such as financial services, education and auto companies using its cloud services. However, it has seen a decline in revenue from the utility industry.
Alibaba said this month it was working on ChatGPT-like technology that could be incorporated into its products. ChatGPT is OpenAI’s very popular chatbot product. It is an example of so-called generative AI, where artificial intelligence is used to generate images or text.
Zhang said in an earnings call on Thursday that Alibaba was looking to “seize market opportunities” to provide the necessary computing power, through its cloud division, for generative AI applications. Generative AI requires huge amounts of data processing to train an AI model. This requires a lot of computing power that cloud companies could offer.
“We expect to see exponential growth in the demand for computing power” as these technologies develop, Zhang said.
Alibaba takeovers continue
The company is also trying to bolster shareholder confidence amid a falling share price. In November, Alibaba said its board had approved an additional $15 billion under its existing $25 billion share buyback program, which will be extended through the end of its 2025 fiscal year.
For the December quarter, Alibaba said it repurchased 45.4 million shares of U.S. Depositary for about $3.3 billion under its share buyback program.