Alibaba’s earnings miss expectations despite cloud acceleration

Alibaba missed top and bottom-line expectations for the June 2024 quarter as it continues to face headwinds in its core e-commerce business amid rising competition and a cautious Chinese consumer.

Here’s how Alibaba did in the June quarter against LSEG estimates:

• Annuity: 243.24 billion Chinese yuan ($34.01 billion) versus 249.05 billion yuan expected.
• Net income: 24.27 billion yuan vs. 26.91 billion yuan expected.

The company’s shares rose about 2% in morning trading.

Revenue was up 4% year over year, while net income was down 29%. Alibaba said the drop in net income was “mainly due to a decrease in operating income” and “increased impairment” from its investments.

Alibaba is seeking to reignite growth after a tumultuous 2023, when it carried out its biggest-ever corporate structure overhaul. Major management changes followed, with Eddie Wu taking over as CEO in September.

The e-commerce giant is battling a cautious Chinese consumer, along with increased competition from rivals such as JD.com and owner Temu PDD.

Since taking the reins, Wu has been trying to put Alibaba’s core e-commerce business in China back on a solid footing. It is currently going through a transition phase where the company plans to focus more on third-party merchants who sell through its platforms — Taobao and Tmall — in China, while reducing its reliance on direct sales.

Wu has previously said the company plans to roll out new monetization features for its e-commerce platforms that will bring the Taobao and Tmall businesses back to growth by the second half of 2025.

In the June quarter, sales from Taobao and Tmall Group, which represents Alibaba’s e-commerce business in China, fell 1 percent year-on-year to 113.37 billion yuan.

Alibaba said it achieved “double-digit” growth in gross merchandise value across its Taobao and Tmall businesses — a number that represents the value of transactions across its entire platform. Alibaba was keen to stress that although overall revenue remains week, shoppers are using its sites.

Meanwhile, Alibaba’s overseas online shopping businesses, such as Lazada and Aliexpress, continue to be a bright spot, with sales in its international e-commerce division up 32% year-on-year.

Investors are closely watching Alibaba’s cloud computing division, which is seen as a driver of future growth for the company.

Alibaba said quarterly revenue from its cloud group reached 26.5 billion yuan, up 6 percent year-on-year, the fastest growth since the June quarter of 2022.

Like the Chinese and the US, the Hangzhou, China-based company has invested heavily in AI and sells AI products through its cloud unit. Alibaba said: “Revenues from AI-related products continued to grow at a triple-digit rate year over year.”

The company reshuffled management of its cloud computing division last year and is trying to focus on higher-margin contracts as well as improving operational efficiency. Adjusted earnings before interest, taxes, depreciation and amortization – or EBITA, a measure of profitability – rose 155% year over year in the cloud division in the June quarter, the company said.