Alibaba reports first profit drop since 2016 due to coronavirus

HONG KONG — With the coronavirus pandemic weighing down on its operations and investments, Alibaba Group Holding has reported its first quarterly profit decline since 2016.

Revenue in what Chief Financial Officer Maggie Wu called “a challenging quarter” rose 22.3% in the quarter to March 31 to 114.31 billion yuan ($16.08 billion) from a year earlier. That was slightly above the market consensus of 107 billion yuan, as surveyed by Refinitiv, but represented the slowest growth in at least four years.

The company reported net income of 348 million yuan during the same period, a decline of 98.5%. Operating income fell 18.6% to 7.13 billion. 

Alibaba shares were nearly flat in pre-market trading on the New York Stock Exchange as of 8am. 

The coronavirus outbreak resulted in a weeks-long lockdown in China beginning from late January and slashed the value of investments in many affiliated public companies in which Alibaba holds shares. Most factories were shut down then and transportation was heavily disrupted.

This meant that even though Alibaba’s core business of facilitating online consumer sales continued unimpeded, its ability to deliver on goods and services ordered was sometimes obstructed.

“For Alibaba, any business segment that has a physical touchpoint such as (online marketplace) Taobao.com, food delivery business Ele.me and logistics [arm] Cainiao Networks is expected to have had a flat [performance] compared with last year or most likely contract from last year,” said Bloomberg Intelligence analyst Vey-Sern Ling ahead of the quarterly results.

Sales from Alibaba’s commerce business grew 21% in the January-March quarter, versus 54% during the same period last year. Its local services business, led by food delivery unit Ele.me, reported quarterly revenue of 4.8 billion yuan, down 8%. Even the group’s cloud computing business experienced a slowdown as engineers stranded at home could not help clients install and upgrade equipment.

Meanwhile, Alibaba also recorded a loss of 7.72 billion yuan from its investment and lending portfolio, compared with a gain of 18.67 billion a year earlier. 

Wu, Alibaba’s CFO, sought to turn investors’ attentions forward from the difficult quarter in a statement accompanying the results. 

“Although the pandemic negatively impacted most of our domestic core commerce businesses starting in late January, we have seen a steady recovery since March,” she said. The company projects generation of at least 650 billion yuan in revenue for the year to March 2021.  

Analysts remain positive about Alibaba’s outlook too. 

“Over time, (the pandemic) has accelerated the structural shift from offline retail to online retail,” Ling said, citing the fact that a growing number of Chinese families dabbled with e-commerce since the country’s lockdown as they had no choice but to buy many goods online. In March, about 846 million smartphone users in China browsed on or purchased from Alibaba’s e-commerce platforms, compared with 721 million people a year before.

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