Robert Sawatzky
Aug 3, 2021

Alibaba doubles investment in sales and marketing as Q1 profit slips

Revenue growth slows and marketing investment grows as the ecommerce giant grapples with competition and a regulatory crackdown.

Alibaba doubles investment in sales and marketing as Q1 profit slips

Profit at Alibaba Group dropped in its latest April - June quarter from a year ago despite rising revenues as the Chinese ecommerce giant elected to spend more to shore up its customer base.

First quarter net profit slid 8% on year to $6.63 billion even though revenues rose 34% to $31.86 billion from the same quarter in 2020. The sales growth, while solid, slightly missed analysts' expectations and its core commerce revenue growth slowed to half the pace of the previous quarter.

After being hit by a $2.75 billion fine for anticompetitive behaviour in the previous January-March quarter (leading to its first ever operating loss), Alibaba is pulling out the stops to keep its users happy and find new growth engines as its market share is challenged not only by government, but also by rivals like JD.com and Pinduoduo in its core commerce business.

"We are investing our excess profits and additional capital to support our merchants and invest in strategic areas to better serve customers and penetrate into new addressable markets,” said Alibaba CFO Maggie Wu in a release.

The company highlighted new investments "in strategic areas to capture incremental opportunities," such as Community Marketplaces, Taobao Deals, Local Consumer Services, Lazada, Idle Fish and Taobao Live along with merchant support. These expenses are what primarly led to the decrease in operating profit, Alibaba stated.

Sales and marketing investments, meanwhile, doubled from RMB13.65 billion, or 9% of revenues in Q1 2020 to RMB27.04 billion ($4.2 billion) amounting to 13% of revenues in Q1 2021.  Alibaba said it needed to spend more on marketing and promotions for its "key strategic areas and growth initiatives as well as user acquisition and engagement on our marketplaces."

Alibaba put its user numbers front and centre in its earnings release, noting global annual active consumers across the Alibaba ecosystem rose by 45 million from the March quarter to 1.18 billion, including 912 million consumers in China.

While China's regulatory crackdown on Internet giants in the past year has hurt Alibaba's share price and has recently spread to other sectors including food delivery and tutoring, Chairman and CEO Daniel Zhang continued to present a bullish outlook to investors

Source: Google Finance

"We believe in the growth of the Chinese economy and long-term value creation of Alibaba, and we will continue to strengthen our technology advantage in improving the consumer experience and helping our enterprise customers to accomplish successful digital transformations," Zhang said.

As a show of strength, Alibaba announced it would aggressively increase its repurchases of company shares from $10 billion to $15 billion.

Strong quarter for Lazada

Alibaba's international commerce retail business, meanwhile, had a strong first quarter with revenue of $1.67 billion, a 54% gain from a year earlier chalked up primarily to rising sales from Lazada and AliExpress.

Year-on-year order growth at Lazada was up over 90% for the April-June quarter.  The company said its localisation strategies across Southeast Asia are paying dividends and "investments in technologies to improve user experience and recommendations on its mobile app have resulted in stronger consumer mindshare and user stickiness, as evidenced by improving frequency of visits by users for the last six consecutive quarters."

 

 

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