Alibaba’s Surprise Job Losses and China’s Covid Corrupts Taking a Toll

(Bloomberg) — Alibaba Group Holding Ltd. reported a surprise loss after quarterly revenue barely grew, as China’s tight Covid controls continue to weigh on consumer sentiment.

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China’s e-commerce leader reported a net loss of 20.6 billion yuan compared with forecasts for a profit of nearly the same amount, after it marked down the value of investments across a portfolio spanning Didi Global Inc. to Indonesia’s GoTo. The company also greenlit a significant $15 billion expansion to an existing $25 billion buyback program and extended it to 2025.

Alibaba is focusing on strengthening its bottom line as Covid policies and anti-trust measures were imposed during last year’s poor growth in the technology sector. This month, the company failed to reveal full sales results for its signature Singles Day shopping festival for the first time in 14 years, suggesting that attendance at its most important annual event was disappointing. And China’s retail sales fell 0.5% in October – the first decline since May and worse than expected marginal growth.

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Revenue rose a slightly less-than-expected 3% to 207.2 billion yuan ($29 billion) in the September quarter, after cloud sales — which had been the company’s main driver — slowed its pace of growth. ever.

Still, investors point to signs that the Xi Jinping administration is backing away from its Covid Zero framework – easing the logistical bottlenecks that have weighed on Alibaba’s business – and increasing support for tech firms.

Chinese tech shares recovered some of their losses this month, after the Communist Party began pulling back from its Covid-Zero playbook and offering more incentives to the Biden administration to work together. Xi’s shift in those areas, along with perceptions of a renewed focus on the world’s No. 2, fueling speculation that Beijing will begin to discourage the private sector.

Alibaba was once China’s most valuable company, and has lost about $600 billion in market value since Beijing launched its sweeping crackdown on the private sector nearly two years ago. The government forced its financial affiliate, Ant Group Co., to scrap the world’s largest initial public offering in 2020, and then launched reforms that established Alibaba’s business model.

Cost optimization — particularly at younger and overseas grocery businesses — is likely to boost Alibaba’s margins for now. But in the long term, it must find an answer to increasingly effective competition.

While Alibaba’s Singles Day sales were in line with last year’s performance, smaller competitor Inc., which had the sector’s worst crackdown in 2021, is overtaking Alibaba in sales growth and has achieved another record during the “11.11” shopping festival.

Emerging competitors including short video platforms are pulling users away. The number of merchants who participated in Singles Day events between October 31 and November 11 on Douyin, the Chinese version of Tiktok, increased by around 86% from the previous year. The number of buyers on Kuaishou increased by about 40% year-on-year during the same event, Jefferies estimates.

What Bloomberg Intelligence says

Cuts in user acquisition spending for and an increased contribution from more profitable deliveries like groceries would lower the cost burden by more than 40% year-on-year, we calculate. Shopee’s continued focus should support Lazada’s rival on profitability vs. revenue gains, which reduce Alibaba’s incremental spending to protect its market share, to implement more cost-effective marketing as it seeks to mitigate losses outside mainland China.

-Catherine Lim and Tiffany Tam, analysts

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Facing stagnation at home, Alibaba is reviving an expansion that has slowed in recent years in the face of competition from Inc. and Tencent Holdings Ltd.-backed Sea Ltd.

Lazada Group Subsidiary is preparing to make its first foray into Europe, building on its success in Southeast Asia. But the US market is still relatively less welcoming.

Washington has added Alibaba to a growing list of companies facing a delisting from US stock exchanges due to a long-running auditing dispute between the two countries. Although US inspection officials completed their first round of on-site inspections of Chinese companies including Alibaba this month, it remains unclear whether the Chinese firms will pass.

The company is seeking a primary listing in Hong Kong which would enable it to tap into more mainland investors, while maintaining its listing status on the New York Stock Exchange. On Thursday, Alibaba said a planned overhaul of its listing in Hong Kong will not be completed by the end of 2022 as previously planned, due to the need to comply with new local regulatory reforms.

–With assistance from Zheping Huang, Sarah Zheng, Lisa Du and Jennifer Ryan.

(Updates with business details from second paragraph)

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