Rahul Sachitanand
Aug 20, 2020

With potential Trump sanctions looming, Alibaba posts robust results

Chinese technology giant gains from pandemic as it reports 34% increase in revenue and 42% rise in income.

With potential Trump sanctions looming, Alibaba posts robust results

In the shadow of potential sanctions by US president Donald Trump, Chinese technology giant Alibaba Group followed fellow behemoth JD.com in posting a strong set of numbers for its first quarter. The company reported a 34% increase in revenue and 42% increase in operating profit, as multiple business units—ranging from ecommerce cloud to computing—benefited from servicing consumers and corporations during the COVID-19 pandemic. 

"We were well positioned to capture growth from the ongoing digital transformation, which has been accelerated by the pandemic, in both consumption and enterprise operations,” said Daniel Zhang, chairman and chief executive officer of Alibaba Group. On the ground, this meant that topline increased to US$21.7 billion this quarter and income was $4.9 billion. 

Alibaba has seen several of its businesses grow over the past quarter. For example, its China retail marketplaces had 874 million mobile MAUs, representing a quarterly net increase of 28 million, and annual active consumers on its China retail marketplaces was 742 million for the twelve months ended June 30, 2020, representing a quarterly net increase of 16 million. Its direct-to-consumer business, Taobao Deals, which launched in March this year, reported around 40 million monthly users in June 2020. Overall, its China commerce business reported a 21% increase in topline to 7.1 billion RMB (US$1 billion). 

“Our domestic core commerce business has fully recovered to pre-Covid-19 levels across the
board, while cloud computing revenue grew 59% year-over-year. Our strong profit growth and cash flow enable us to continue to strengthen our core business and invest for long term growth," said Zhang.  

Growth was evident in other segments too. Tmall's online physical goods GMV (excluding unpaid orders) grew 27% year-over-year during the June 2020 quarter, with major categories growing at similar or faster rates compared to the December 2019 quarter—before the onset of the pandemic. Tmall Global, a platform for foreign brands and merchants to reach Chinese consumers, grew its GMV 40% year-over-year. These commerce businesses accounted for two-thirds of Alibaba's business this quarter. 

Elsewhere, Taobao Live’s ecosystem continued to strengthen with broader adoption by brands, retailers and merchants across all product categories. In the last quarter, Taobao Live GMV more than doubled year-over-year and live streaming sessions hosted by merchants accounted for approximately 60% of Taobao Live GMV (excluding unpaid orders). 

Powered by digitisation 

Digitsation played a key role in Alibaba's growth, with sectors ranging from retail to food seeing strong growth. The firm's self-operated grocery retail chain Freshippo (known as “Hema” in Chinese) continued to expand with over 214 Freshippo stores in China, primarily located in tier 1 and tier 2 cities.

Meanwhile, Tmall Supermarket continued to deepen its collaboration with Sun Art through its omni-channel solutions. Since its launch in September 2019, Alibaba's half-day delivery service that uses Sun Art’s store-based inventories has seen significant growth. In the June 2020 quarter,

Alibaba enabled approximately 15% of Sun Art’s total revenue.

Alibaba's food delivery service, Ele.me, saw its unit economics turn positive this quarter. The number of registered merchants of Ele.me as of June 30, 2020 grew 30% year-over-year and around 45% of new customers ordering food delivery came from the Alipay app. 

In the digital entertainment segment, Youku’s daily average subscriber numbers rose 60% year-over-year during the quarter. The business has increased contribution from the 88VIP membership program and the focus is on return on investments and cost efficiencies, with loss year-over-year further narrowed during the quarter.

Away from the consumer business, the cloud computing business profited significantly in the past three months, growing 59% year-on-year to record revenues of almost $1.8 billion. This business unit has seen strong adoption from sectors including ecommerce, finance, logistics, public transportation and entertainment.

International ambitions 

In a market CEO Zhang described as "very fluid" in a post results analyst call, he said Alibaba is also optimistic about building out its international business. "Southeast Asia continues to be a strategic priority of our globalisation strategy," he told analysts. For its Southeast Asian ecommerce business Lazada, Alibaba has seen over 100% quarterly order growth. 

This international bravado is also tempered by the looming threat of action from US president Donald Trump. Zhang is acutely aware of this sword hanging over Alibaba's head and has made contingency plans to cope with any blowback. "(We are) assessing the situation and any potential impact carefully and thoroughly, and will take the necessary actions to comply with any new regulation," he told analysts.  

Campaign Asia

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