Rahul Sachitanand
Nov 6, 2020

Ant Group IPO uncertainty clouds Alibaba Q2 numbers

While pandemic spending boosted topline by 30% for the second quarter, operating profit took a 33% knock due to expenses related to Ant Group.


Concerns over the recently deferred the $35 billion IPO of Ant Group overshadowed a solid set of numbers from Alibaba, which is a one-third owner of Ant. For the second quarter of its financial year, Alibaba posted a 30% increase in revenue to RMB 155.1 billion ($22.8 billion), even as charges cleaved into its operating profit for the quarter, causing it to slide by 33% to RMB 13.6 billion or just over $2 billion. 

The concern from investors and consumers alike caused Daniel Zhang, Alibaba's CEO and executive chairman to address this issue upfront in post-results call with analysts. “As Ant Group’s major shareholder, Alibaba is actively evaluating the impact on our business in response to the recently proposed changes in the fintech regulatory environment, and will take appropriate measures accordingly,” he said. 

Despite this overhang, Alibaba continued to profit from the pandemic, and with annual festive sales around the corner, was a magnet for brands looking to cash in on Chinese consumer spending in the coming months. Annual active consumers on its China retail marketplaces reached 757 million, an increase of 64 million year-on-year, even as mobile monthly active users was up 96 million to 874 million for the same period. 

A key focus for Alibaba this year will be its festive sale, which is extending from a single day to a series of events over an 11-day runup. Zhang told analysts that On November 1, the first day of official sales, over 100 brands each surpassed over RMB 100 million ($15 million) GMV within the first 111 minutes. "On the same day, 357 new brands on our platform become the top seller in their respective subcategories,' he added. 

Alibaba benefited from the pandemic in other categories too. Tmall's online physical goods GMV, excluding unpaid orders, grew 21% year-over-year this quarter, even as FMCG continued to be the fastest-growing category with 28% GMV growth YOY, of which food and healthcare increased 38% and 50% YOY, respectively. The growth rate of Tmall apparel was higher than the pre-COVID December quarter.

Elsewhere, Alibaba continued to grow its presence in brick-and-mortar retail, as it sought to use its technology muscle to catalyse omni channel opportunities. In October, Alibaba invested $3.6 billion to acquire a controlling stake in Sun Art. "The purpose of this investment is to further strengthen our explorations in New Retail by driving deeper digital transformation of the hypermarket model to leverage Sun Art's competitive advantage in supply chain and to create more synergies between Sun Art and Alibaba's digital ecosystem," Zhang told analysts. 

GMV from Taobao Live, the live streaming portal, was over RMB 350 billion ($52.8 billion) for the 12 months ended September 30. Alibaba also continued to invest in two paid membership programs. 88VIP and Taobao Pass, with combined number of paying members at 35 million as of September 30, 2020. 

Away from the spotlight on consumer-facing businesses, Alibaba's cloud computing continued to show robust growth—at over 60% this quarter—to cross $2 billion in revenue, primarily driven by growth in revenues from customers in the Internet, finance and retail industries. "Customers across all sizes and industries continued to enjoy our products and services. As of September 30 approximately 60% of A-share listed companies are customers of Alibaba Cloud, and their average pending grew 45% YOY in September 2020," the company said in media statement. 

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