Alibaba shares fell on 11% after the report. What happened?

Акции Alibaba упали на 11% после отчета. Что случилось?

In the second quarter, which ended 30 september, the retailer's profit fell by 81%, revenue growth from electronic platforms slowed down, and the company lowered its sales forecast for the year.

Basic income does not grow

Alibaba's revenue grew by 29%, up to 201 billion yuan, or $31 billion. That's less than the 205 billion., what analysts expected. Revenue increased largely due to consolidation of Sun Art sales. Alibaba bought this hypermarket chain from Auchan in October last year. Without Sun Art, revenue would have grown significantly less - by 16%, up to 180 billion.

In the key, commercial segment, revenue increased by 31%, up to 171 billion. The segment includes retail and wholesales in China and abroad, hypermarket revenues, logistics services and others.

The segment is based on Taobao and Tmall retail platforms, who do about 40% proceeds. This is where Alibaba makes money from ads and commissions., charged to sellers and buyers. And this income grew by only 3%. For comparison: in the last quarter the growth was 14%, a year ago - 20%.

All due to "new players in the Chinese e-commerce market and slowing market conditions", says in Alibaba report. Probably, the company is referring to the slowdown in the growth of the Chinese economy. In the third quarter, GDP growth of the country was below expectations: 4,9 vs 5,2%. This could have affected consumption. Some other analysts note a slowdown in the growth of online retail sales in China.

Good example. Alibaba Sales on Bachelor Day 11 November rose by 8% comparing with the previous year. This is the slowest growth rate since 2009. for example, in 2020 these sales increased by 26%.

Alibaba puts all this in its weak outlook. The company downgraded its revenue growth forecast for the 2022 fiscal year from 30 up to 20-23%.

But in the cloud segment, the situation is slightly better.. Here, sales grew by 33%, up to 20 billion. Operating loss decreased from 5 up to 2 billion.

Investments reduce profits

Alibaba profit fell by 81%, from 28.8 billion to 5.4 billion yuan. Adjusted profit for ADR fell on 38% and turned out to be less than expected: 11,2 vs 12.36 yuan.

Profit decreased for a variety of reasons. for example, the company paid more taxes, and also lost some of the money on investments in shares of other companies.

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Alibaba calculates adjusted EBITA - adjusted earnings before interest - to better measure its performance., taxes and depreciation. This figure excludes non-operational and non-monetary items..

Even with different amendments, adjusted EBITA fell by 32%, up to 28 billion. This is because of "strategic investments", states Alibaba. The company has invested 12.5 billion in its services, what affected its profit and profitability.

One of the investments is the development of trade and logistics in small towns with low incomes. Probably, Alibaba plans to increase its market share. Maybe, it is an "investment for shared prosperity".

At the end of August, the President of the People's Republic of China called on large companies to share with the society: invest in jobs, economic development, and also support vulnerable groups. Alibaba promised to invest 100 billion yuan, or $15.5 billion, until 2025.

And if this is the case, then in the coming quarters the Chinese giants will still "please" investors with lower profits and margins.

Stocks are falling

If the decrease in profits can still be explained by investments, then the slowdown in digital sales growth and the weak outlook is much worse. Alibaba shares fell by 11%, to 143,6 $. This is not much higher than the multiyear low in 140 $, on which securities were traded in early October.

Alibaba shares have been in a bearish trend since the end of last year. Then the Chinese authorities called the company a monopoly, and later fined $ 2.8 billion. During the year, regulators in China interfered with other companies like DiDi., TAL Education и Tencent, which also affected the shares of Alibaba.

Акции Alibaba упали на 11% после отчета. Что случилось?

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