Turnover fixed for the first fall
Alibaba has faced growth challenges amid tighter regulations in China’s tech sector and a slowdown in the world’s second-largest economy. But analysts believe the e-commerce giant’s growth could accelerate through 2022.
Kuang Da | Jemian News | CGV | Getty Images
Alibaba’s revenue could drop for the first time on record when it releases June quarter results on Thursday, analysts said, though it could signal bottoming in sales.
The Chinese e-commerce giant is expected to register total revenue of 203.23 billion yuan ($30.05 billion) in the first quarter, down 1.2% from a year ago, according to Refinitiv consensus forecast.
Alibaba’s revenue has slowed sharply over the past year amid a slowing Chinese economy, a resurgence of Covid and subsequent lockdowns as well as regulatory tightening in the domestic tech sector.
But the June quarter could mark a bottom for Alibaba’s results as revenue is expected to improve in the coming quarters.
“Overall, we believe investors are largely expecting weak June quarter results and the stock is currently focused on the 2H recovery trend, which we remain positive on as the government continues to step up economic stimulus to meet its GDP growth target,” US Tiger Securities said in a note last month..
Revenue in the September quarter is expected to grow 7% while the December quarter could see nearly 10% growth, according to Refinitiv estimates.
The weakness in this week’s report will primarily come from weak trading revenue for the company in China, China Merchants Securities said in a note released last month.
Weak consumption will weigh on customer purchases while revenue from customer management or CMR will also decline due to tighter vendor advertising budgets on Alibaba’s platforms, China Merchants Securities said.
CMR is the income Alibaba earns from services such as marketing that the company offers to merchants on its Taobao and Tmall e-commerce platforms. Vendors that cut ad spend hit Alibaba’s CMR.
However, China Merchants Securities said it saw business operations in China enjoying a “gradual recovery…with improved profitability through disciplined cost control.”
Alibaba could have tailwinds in the coming quarters to help its recovery. There are signs that China’s regulatory crackdown – in which Alibaba was fined 18.23 billion yuan – is starting to ease.
Meanwhile, the Chinese government in May announced a series of economic stimulus measures designed to help an economy battered by a resurgence of Covid and shutdowns in major cities, including the financial metropolis of Shanghai.
However, not all analysts expect a return to explosive growth for Alibaba.
“When I visualize my ‘cone of all plausible outcomes’, the plurality of scenarios leads to a modest reacceleration of growth through mid-adolescence, but I also see a whole category of scenarios where things get much worse on the fundamentals,” John Freeman, vice president of CFRA Research, told CNBC via email.
“The cone is very wide right now.”
Cloud computing in the spotlight
Apart from Alibaba’s core business, investors are also focusing on cloud computing revenue, although it still accounts for less than 10% of total sales. Indeed, investors see Alibaba’s cloud efforts as key to the company’s future growth prospects and profitability.
“The reacceleration of cloud growth is essential for me to become positive on fundamentals again, because the cloud generates much more operating leverage than e-commerce execution and is inherently a much more profitable business,” said CFRA’s Freeman. .
“The cloud is the reason for most of Amazon’s appreciation in value over the past decade and that could possibly be true for Alibaba.”
Forecasts for cloud activity are mixed. US Tiger Securities expects cloud revenue to grow 8% year-over-year in the June quarter, which would be the slowest growth rate on record. China Merchants Securities meanwhile expects 13% year-on-year growth, which would be a slight acceleration from the March quarter.