Alibaba revenue falls for first time since New York listing

Alibaba’s quarterly revenue has fallen for the first time since its 2014 New York listing after the ecommerce group co-founded by Jack Ma suffered from China’s brutal Covid-19 lockdowns.

The Chinese group reported that revenue in the second quarter declined less than 1 per cent year on year to Rmb206bn ($31bn), during a period that included Covid lockdowns in large parts of the country. Operating profit fell 19 per cent to Rmb25bn from a year earlier.

Noting the “soft” economic environment, chief executive Daniel Zhang said Alibaba could not control the Covid resurgence nor Beijing’s policies. “The only thing we can do at this moment is to focus on improving ourselves,” he said.

Alibaba faces a host of challenges that have sent its share price tumbling to levels near where it first traded hands in New York in 2014.

Competitors such as Pinduoduo, JD.com and TikTok parent ByteDance have taken share from its crucial ecommerce businesses Taobao and Tmall, while China’s tech crackdown continues to simmer.

Alibaba last month was also identified by the US Securities and Exchange Commission as one of the many Chinese groups in line for delisting if a spat between Beijing and Washington over access to audit records cannot be resolved. Alibaba is working to upgrade its listing in Hong Kong in preparation.

Sales in cloud computing, a business line that Alibaba calls a pillar of its future, grew only 10 per cent year on year, further decelerating from the previous quarter. Zhang blamed the tepid cloud growth on the slowing economy, pain in China’s internet sector and Covid lockdowns weighing on project starts.

Zhang said Alibaba saw signs of recovery in June and July but noted that the company would continue to focus on cost control. Alibaba has already laid off hundreds of employees this year.

Net income at Alibaba fell 50 per cent from a year earlier to Rmb23bn.

Nevertheless, the better than expected results sent Alibaba’s shares climbing more than 6 per cent in pre-market trading in New York on Thursday.

Robin Zhu, of Bernstein, said Alibaba was “executing on its strategy to cut new business spending and improve efficiency”.

“Daniel sounds confident [about the future],” said Zhu, noting his upbeat tone was a departure from previous quarterly calls.

Meanwhile, Alibaba’s largest shareholder, Japanese group SoftBank, has this year moved to sell down about one-third of its shares through a type of derivative known as prepaid forward contracts as the tech investment group raises cash and diversifies away from China.

While SoftBank has the option to buy back the shares in 2024 when most of the deals come due, previous transactions show the banks on the other side of the trade, including Goldman Sachs and UBS, have the right to use the Alibaba shares in the interim, which could include hedging activities.

That could be matched by further selling from Ma and vice-chair Joe Tsai, who recently retrieved a large block of Alibaba shares that had been tied up as collateral over guarantees made to SoftBank and Yahoo, related to its fintech arm Ant Group. The pledged shares had represented 39 per cent of Tsai’s remaining Alibaba shares and nearly one-third of Ma’s holding at the end of December.

Alibaba spent $3.5bn to repurchase shares in the June quarter and said it still had $12bn to utilise as part of a previously authorised buyback programme.