After Huge Earnings Beat, Alibaba Shares Rise By 6%

Alibaba's fiscal third quarter results above forecasts, driving up the value of the internet giant's U.S.-listed shares by 6%.

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• Comparing actual results to Refinitiv consensus estimates for the quarter that ended on December 31, 2022, Alibaba did as follows:
• Sales of 247.76 billion Chinese yuan ($35.92 billion), 2% more than anticipated (245.18) billion yuan;
• Profits per American depositary share: 19.26 yuan compared to the anticipated 16.26 yuan, up 14% annually;
• Net income increased 69% year over year to 46.82 billion yuan from 34.02 billion yuan.

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From its peak in October 2020, Alibaba's worth has decreased by almost $600 billion as the e-commerce behemoth has been impacted by a tightening regulatory environment on tech businesses in China, strict Covid-19 control rules, and a resulting economic downturn.

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Investors expect that China's economic reopening will help raise consumer morale and spending, which will ultimately help the e-commerce giant. As a result, Alibaba shares in Hong Kong finished higher Thursday ahead of earnings. China abruptly ceased its tight Covid controls, including lockdowns, during the December quarter, though it's unlikely that this was fully reflected in the quarter.

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As rule enforcement becomes more predictable, China's regulatory tightening over the previous two years is beginning to loosen.

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The China commerce section of Alibaba, which includes its well-known marketplace Taobao, brought in a total of 169.99 billion yuan in revenue, a 1% year-over-year decline. The decrease was caused by a 9% decrease in customer management revenue, which Alibaba collected from the sale of services like marketing to retailers on its Taobao and Tmall e-commerce platforms.

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The amount of transactions made on Alibaba's online shopping platforms, or the gross merchandise volume, "declined mid-single-digit year-over-year, mainly due to soft consumption demand and ongoing competition as well as a surge in COVID-19 cases in China that resulted in supply chain and logistics disruptions in December," according to Alibaba.

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The business claimed that it anticipates a recovery in China's economy and consumer spending.

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Alibaba CEO Daniel Zhange stated in a press statement that "looking forward, we foresee further rebound in consumer sentiment and economic activity."

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Alibaba has pursued expansion in international markets through its South East Asia company Lazada and through global e-commerce platform AliExpress while its business in China has slowed. Revenue from international trade increased by 18% on a yearly basis to 19.47 billion Chinese yuan.

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When the full impact of the Chinese economic reopening is realized, analysts anticipate that Alibaba will experience stronger revenue growth during the ensuing quarters. For the first time in three years, Morgan Stanley just declared Alibaba its "top pick" in the Chinese tech industry.

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Increased Profitability

Alibaba started taking cost-cutting initiatives last year in an effort to increase profitability. The business is attempting to strike a balance between costs and keeping up significant investments for future growth.

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With a 69% increase in net income from the previous year, those efforts seem to be working. In comparison to the 3% reported during the same period previous year, the company's operating margin in the December quarter was 14%.

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In the December quarter, Alibaba was able to cut losses across the board, including in its cloud business and logistics unit Cainiao.

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Toby Xu, chief financial officer of Alibaba, stated in a news statement that "over the last quarter, we continued to increase operating efficiency and cost optimization, which resulted in solid profit growth."

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At the conclusion of the December quarter, Alibaba had 239,740 employees, down more than 4,000 from the previous quarter.

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The Cloud Slowness Continues

Alibaba reported third-quarter fiscal cloud revenue of 20.18 billion Chinese yuan, an increase of 3% from the previous year. This was a slower gain in sales than the prior quarter's 4% increase and is still well below the more-than 30% growth rates seen in the past.

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Although it only makes up 8% of the company's sales, analysts believe that cloud computing will be a key factor in the company's future growth.

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Alibaba claimed to have seen growth from non-internet sectors using its cloud services, including the financial services, education, and auto industries. Nonetheless, the industry of public services suffered a fall in revenue.

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This month, Alibaba announced that it was developing a system similar to ChatGPT that might be included into its goods. The most well-known chatbot product from OpenAI is called ChatGPT. It is an illustration of so-called generative AI, in which computer programs are used to produce text or visuals.

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On a Thursday earnings call, Zhang stated that Alibaba is seeking to "grab the market opportunity" in order to use its cloud division to give the necessary computing capacity to generative AI applications. For generative AI to work, enormous volumes of data must be processed. This requires a lot of computer power, which cloud service providers might provide.

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As these technologies advance, "we anticipate seeing exponential growth in the demand for computational power," Zhang added.

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Alibaba stated that it will not be "having a chatbot for the sake of having a chatbot" but did not offer any additional information about ChatGPT.

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The chatbot will instead be included into Alibaba's "business around consumption, around user experience, and content development to generate higher advertising effectiveness," according to Zhang.

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And he said, "A.I. can be quite important in each of those areas.

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Continued Buybacks From Alibaba

In the midst of a decline in its stock price, the corporation is simultaneously attempting to increase shareholder confidence. Alibaba's board of directors approved an extra $15 billion in November as part of the $25 billion share repurchase program that would continue through the conclusion of the company's fiscal year 2025.

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Alibaba reported that it used its share buyback program to repurchase 45.4 million American depositary shares for roughly $3.3 billion during the December quarter.

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Alibaba is also in the process of designating Hong Kong as its "primary" listing for its shares, opening up direct stock trading for investors in mainland China. Nevertheless, the business said in November that the procedure will not be finished in 2022 as originally anticipated.