Chinese tech giant Alibaba has cut its sales and marketing spend after the company reported flat revenue growth (as a listed company) for the June quarter of its financial year. The company's growth was slowed by decline in revenues of its China commerce business, where revenue fell by 1%, even as the cloud computing unit made up for some of this by growing its topline by 10% in the period.
According to a company fact sheet, sales and marketing expense as a percentage of revenue was down from 13% in the June quarter last year to 12% this fiscal. "Sales and marketing expenses ratio decreased ... reflecting our efforts in optimising user acquisition and retention spending across businesses," Alibaba's chief financial officer Toby Xu told analysts in a post-results review.
Its soft performance affected its advertising revenue too. "Total advertising revenue declined slightly faster than ... GMV decline," Xu added.
Alibaba's three challenges
Alibaba posted its quarterly numbers on the back of heightened regulatory scrutiny, supply chain bottlenecks, and renewed Covid headwinds across China. For its June quarter, the company reported revenue of RMB 205.55 billion yuan ($30.68 billion) vs RMB 205.74, remaining flat year-on-year. Operating income was RMB 24.94 billion (US$3,724 million), a decrease of 19% year-over-year. Its China commerce business, which accounts for over two-thirds of its business, shrank to $141.93 billion ($21.19 billion) from RMB 144.02 billion a year ago.
“During the past quarter, we actively adapted to changes in the macro environment,” said Daniel Zhang, chairman and chief executive officer of Alibaba Group in a media statement. “Following a relatively slow April and May, we saw signs of recovery across our businesses in June."
China commerce sluggish
In a challenging quarter for its China commerce business, GMV (gross merchandise value—the total revenue of all goods and services sold) generated by its Taobao and Tmall businesses declined by "mid-single-digit year-over-year."
Orders fell for key segments such as fashion and accessories and consumer electronics during the quarter, Alibaba noted. The 6.18 shopping festival, however, helped these platforms make up some lost ground.
Growth was however sound in its direct-to-consumer business which expanded by 8% in the quarter to hit RMB 64.74 billion (or over $9.6 billion in size). This was primarily driven by growth of online purchases of food, grocery and FMCG goods on Freshippo, Tmall Supermarket and Sun Art.
Cloud business shines
Elsewhere, the company's standout performer was its cloud business, whose revenue after inter-segment elimination was $17.68 billion (over $2.6 billion). Growth was driven by financial services, public services, and telecommunication industries. Alibaba lost business from its "top internet customer" that has stopped using the firm's overseas cloud services for its business.
While Chinese internet companies were early adopters of Alibaba's cloud computing solutions, CEO Zhang told analysts this adoption had become more widespread now. "(This) give(s) our Alibaba Cloud, a very huge opportunity to to transform a cloud computing from a technology to a real business," he added.