Alibaba has faced growth challenges amid tightening regulations in China’s domestic technology sector and a slowdown in the world’s second-largest economy. However, analysts believe the e-commerce giant’s growth could accelerate through the rest of 2022.
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Alibaba’s revenue could fall for the first time on record when it reports June-quarter earnings on Thursday, analysts predict, although it could signal a sales bottom.
The Chinese e-commerce giant is expected to report first-quarter fiscal revenue of 203.23 billion yuan ($30.05 billion), down 1.2 percent from a year earlier, according to Refinitiv consensus forecasts.
Alibaba’s revenue has slowed sharply over the past year amid a slowdown in the Chinese economy, a resurgence of Covid and subsequent lockdowns and tightening regulations in the domestic tech sector.
However, the June quarter could mark the bottom for Alibaba’s results as revenue is expected to improve in subsequent quarters.
“Overall, we believe that the soft June quarter results are largely expected by investors and the current focus for the stock is the recovery trend in the second half, which we remain positive on as the government continues to strengthen economic stimulus to achieve the growth of its GDP. target,” US Tiger Securities said in a note last month.
September quarter revenue is expected to rise 7%, while the December quarter could see an increase of close to 10%, according to Refinitiv estimates.
The softness in this week’s report will come mainly from weakness in the company’s trading revenue in China, China Merchants Securities said in a note published last month.
Weak consumption will weigh on customer purchases, while customer management revenue, or CMR, will also decline due to tighter supplier ad budgets on Alibaba’s platforms, China Merchants Securities said.
CMR is revenue that Alibaba receives from services such as marketing that the company offers to merchants on e-commerce platforms Taobao and Tmall. Sellers cutting ad spend hurt Alibaba’s CMR.
However, China Merchants Securities said it sees China’s merchant business having a “gradual recovery… with profitability improving thanks to disciplined cost control”.
Alibaba could have some headwinds in the coming quarters to help its recovery. There are signs that China’s regulatory crackdown – which saw Alibaba fined 18.23 billion yuan – is beginning to ease.
Meanwhile, the Chinese government in May announced a series of economic incentives designed to help an economy hit by a resurgence of Covid and lockdowns in major cities, including the financial metropolis of Shanghai.
However, not all analysts expect to see a return to explosive growth for Alibaba.
“When I visualize my ‘cone of all plausible outcomes,’ the plurality of scenarios leads to a modest acceleration of growth back to mid-teens, but I also see a whole class of scenarios where things get much worse in the fundamentals.” John Freeman, vice president of CFRA Research, told CNBC via email.
“The cone is too wide right now.”
Cloud computing in focus
Aside from Alibaba’s core business, investors are also focused on cloud computing revenue, even though it still accounts for less than 10% of total sales. That’s because investors are eyeing Alibaba’s cloud efforts as key to the company’s future growth and profitability prospects.
“Accelerating cloud growth is key for me to shift back to positive fundamentals because cloud creates much more operational leverage than e-commerce fulfillment and is inherently a much more profitable business,” said CFRA’s Freeman.
“The cloud has been the reason for most of Amazon’s value appreciation over the past decade, and that could be the case for Alibaba after all.”
Predictions for the cloud business are mixed. US Tiger Securities expects cloud revenue to grow 8% year-over-year in the June quarter, which would be the slowest growth rate on record. China Merchants Securities, meanwhile, forecasts 13% year-on-year growth, which would be a slight acceleration from the March quarter.