Alibaba shares rise 6% after massive gains

Alibaba reported earnings for its fiscal third quarter that beat expectations, pushing the tech giant’s US-listed shares 6% higher.

Here’s how Alibaba did in its fiscal third quarter, which ran from October to December 2022, versus Refinitiv’s consensus estimates:

• Revenue: 247.76 billion Chinese yuan ($35.92 billion) vs. 245.18 billion Chinese yuan expected, up 2% year-on-year;
• Earnings per US share held: 19.26 yuan vs. 16.26 yuan expected, up 14% year-on-year;
• Net income: 46.82 billion yuan versus 34.02 billion yuan, an increase of 69% year-on-year.

About $600 billion has been wiped from Alibaba’s value since its peak in October 2020, when the e-commerce giant was hit by tighter regulations for tech companies in China, along with strict Covid-19 control policies — and the subsequent economic slowdown.

Alibaba shares in Hong Kong closed higher than earnings on Thursday as investors bet China’s economic reopening will help boost consumer confidence and spending, ultimately helping the e-commerce giant. During 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, the tightening of Chinese regulations over the past two years is starting to ease as enforcement of the rules becomes more predictable.

The turnover of Alibaba’s largest company, the Chinese trading division, which includes the popular marketplace Taobao, totaled 169.99 billion yuan, down 1% year-on-year. The decline was driven by a 9% year-over-year drop in customer management revenues, derived from services such as marketing that Alibaba sells to merchants on its Taobao and Tmall e-commerce platforms.

Alibaba said gross trading volume – or the value of transactions on the company’s online shopping platforms – “declined by a single digit year on year, mainly due to weak consumer demand and continued competition, as well as an increase in COVID-19 cases in China which resulted in supply chain and logistics disruptions in December.”

The company said it sees an uptick in China’s economy and consumption.

“Looking forward, we expect a continued recovery in consumer confidence and economic activity,” Alibaba CEO Daniel Zhange said in a press release.

Amid a slowdown in its business in China, Alibaba has sought growth in overseas markets through its South East Asian business Lazada and global e-commerce site AliExpress. International trade turnover grew 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 China’s economic reopening is felt. Morgan Stanley called Alibaba its “top choice” in China’s technology sector for the first time in three years, in a recent note.

Last year, Alibaba took measures to control costs to improve profitability. The company is trying to balance costs with continuing to make significant investments for long-term growth.

Those efforts appear to be paying off with a 69% year-over-year increase in net income. The company’s operating margin was 14% in the December quarter, higher than the 3% reported in the same period last year.

Alibaba managed to reduce losses across all of its businesses in the December quarter, including its logistics arm Cainiao and its cloud division.

“In the past quarter, we continued to improve operational efficiency and cost optimization, resulting in robust earnings growth,” Alibaba’s chief financial officer Toby Xu said in a press release.

At the end of the December quarter, Alibaba’s workforce was 239,740, down more than 4,000 from the previous quarter.

Alibaba reported cloud revenue of 20.18 billion Chinese yuan in its fiscal third quarter, up 3% year-on-year. This marked a slowdown from the 4% revenue increase in the previous quarter and remains a far cry from the 30+% growth rates 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 also saw growth from non-Internet industries such as financial services, education and auto companies using its cloud services. However, it saw a drop in revenue from the public service sector.

The company is also trying to boost shareholder confidence amid a stock price slump. In November, Alibaba said its board approved an additional $15 billion as part of its existing $25 billion share repurchase program, which will be extended through the end of fiscal year 2025.

For the December quarter, Alibaba said it repurchased 45.4 million U.S. depositary shares for approximately $3.3 billion under its share repurchase program.

Alibaba is also in the process of making Hong Kong a “primary” listing for its stock, paving the way for mainland China investors to trade the stock directly. However, the company said in November that the process would not be completed in 2022 as initially planned.