Rahul Sachitanand
Nov 19, 2021

Steep profit decline, muted forecast clouds Alibaba Q3 earnings

Chinese technology giant reports heaviest profit decline in five years and slowest revenue growth since it listed in 2014.

Steep profit decline, muted forecast clouds Alibaba Q3 earnings

Feeling the double whammy of slowing domestic demand and tightening regulatory scrutiny in the past quarter, Chinese technology giant Alibaba is forecasting muted growth for the coming year. For its third quarter, the firm reported its heaviest profit decline in five years and said its revenue growth would be the slowest since it went public in 2014.

Alibaba cited for the rough numbers heavy investments in its younger businesses, such as Lazada and Tabao Deals, as it hunted for new growth drivers. For Q3 of this fiscal year, Alibaba reported an 87% decline in net profit to RMB 3.4 billion (US$524 billion), even as revenue rose by 29% to RMB 200.7 billion ($31.3 billion). However, adjusted net profit, often used as a clearer definition of a company's financial health, declined 39% in the period, falling for the first time in 22 quarters.

"In the September quarter, China’s GDP and consumption continue to grow but slower than the previous quarters," Alibaba chairman and CEO Daniel Zhang told analysts in a post results call. "Offline retail has only just returned to the same level as two years ago. These economic headwinds coupled by intensifying market competition also affected our core commerce business in China." Increased regulatory scrutiny only added to Alibaba's woes. 

Zhang stated that he was committed to Alibaba's long-term growth, even as he battled short-term headwinds. “This quarter, Alibaba continued to firmly invest into our three strategic pillars of domestic consumption, globalisation, and cloud computing to establish solid foundations for our long-term goal of sustainable growth in the future,” he said in a media release. “Our global annual active consumers across the Alibaba Ecosystem reached approximately 1.24 billion, with a quarterly net increase of 62 million consumers, and we are on track to achieve our longer-term target of serving two billion consumers globally.” 

Ecommerce growth was also stunted by intensifying domestic competition. For the quarter ended September 30, Alibaba recorded single-digit physical goods GMV year-over-year growth, the company stated. This was primarily due to slowing market conditions and more players in the China ecommerce market, it noted. For the 12 months ended September 30, Alibaba had 863 million active users on its China retail marketplaces and what it terms new retail businesses.

Alibaba's Singles Day sales this year grew in single digits for the first time ever to record GMV of RMB 540.3 billion ($84.5 billion), as a softening domestic market impacted this normally red-hot event.  

Alibaba's muted financial performance was also because the company invested heavily in its fast-growing overseas and cloud businesses. Its international commerce retail business, mainly including Lazada, AliExpress, Trendyol and Daraz, had 285 million users or what it terms annual active consumers (AACs) in the 12 months ended September 30, representing a quarterly net increase of 20 million. International commerce retail and international commerce aggregate year-over-year revenue increased 34% to over RMB 15 billion ($2.3 billion). Lazada recorded 82% year-over-year order growth. 

While its commerce businesses continued to be loss-making overall, Alibaba has continued to ramp up investments in these businesses, which would account for a hike in sales and marketing expenses this quarter. "Sales and marketing ratio (percentage of sales and marketing spend to revenue) also increased in September quarter due to an increase in marketing and promotional spending for user acquisition and engagement for our mobile commerce businesses, such as Taobao Deal, Lazada, Palomar, and also Taocaicai," director and CFO Maggie Wei Wu told analysts. For the record, sales and marketing expenses in the quarter were RMB 28.8 billion ($4.4 billion), or 14% of revenue, compared to RMB 17.37 billion, or 11% of revenue, in the same quarter of 2020. 

Away from its commerce offerings, Alibaba's cloud computing business continues to be a standout performer. The business grew 33% year-over-year to over RMB 20 billion ($3.1 billion), primarily driven by strong growth in revenue from customers in the Internet, financial services and retail industries. 

Related Articles

Just Published

12 minutes ago

Why TikTok is not the place to be for brands during ...

Before and after the game are a different story as brands “scratch the surface” of what they can do on the platform for big events.

24 minutes ago

Accenture brings on Magic Leap chief design officer ...

James Temple to head up Accenture Song’s metaverse capabilities, succeeding Mark Curtis, who is moving to its global sustainability studio.

41 minutes ago

Arthur Sadoun interview: Publicis’ ‘profound ...

CEO talks to Campaign UK at Q4 results about rewarding talent and paying an average salary increase of 8% last year.

2 days ago

Amazon's ad revenue surges to $11.6 billion in Q4

While Google and Meta deal with slowdowns, Amazon's advertising business, still a small fraction of the overall sales, grew 19% in the fourth quarter.