Alibaba sales growth beats forecasts and boosts shares

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Alibaba returned to strong sales growth, boosting its shares in New York, but planned investment restrictions from Washington threaten to cloud the future of a key business line.

Second-quarter sales rose 14 per cent to Rmb234bn ($32.3bn), ahead of Wall Street expectations, compared with the same period a year ago when strict Covid-19 lockdowns paralysed much of the Chinese economy. The latest double-digit rise contrasted with recent quarters of sluggish growth.

Net profit rose 51 per cent year on year to Rmb34bn as the Hangzhou- based company stepped up its efforts to control costs, which included reducing the total headcount by 6,500 employees during the quarter.

The upbeat earnings report from one of China’s largest retailers is a good sign for the country’s stuttering economy, which has lately flashed recession warning signs such as deflation, declining exports and mounting problems for its real estate sector. Alibaba’s shares rose more than 6 per cent in early trading in New York.

However, hours before Alibaba disclosed its quarterly figures, the Biden administration unveiled its plans to ban some US investment into China’s quantum computing, advanced chips and artificial intelligence sectors.

The tepid growth from its cloud unit, up 4 per cent in the three months to June, coupled with the planned restrictions from the US could dim Alibaba’s prospects. The ecommerce group has grouped most of its artificial intelligence efforts into the cloud unit, which could subject it to Washington’s outbound investment controls that the Biden administration unveiled on Wednesday. 

The US rules are yet to be finalised and could lay out exceptions for investment in publicly traded companies, the Treasury said. 

Under outgoing chief Daniel Zhang’s leadership, Alibaba has ceded market share to rivals and shed billions of dollars of market value. He will next month hand the reins to Jack Ma acolyte Eddie Yongming Wu.

Zhang said that Alibaba’s split into six entities was “beginning to unleash new energy across our businesses” and attributed the quarter’s “solid performance” to a “reflection of early results of this change”. 

He will remain head of Alibaba Cloud, the group’s cloud computing arm, which was once touted as a pillar of its future but has struggled recently. Alibaba is planning a private fundraising round and public listing for the unit before handing out shares to existing shareholders.

Zhang said that, in addition to its internal AI efforts, the unit was positioning itself as a key computing power provider to start-ups training and using large language models. “Over the long term, Alibaba Cloud will benefit from the application of AI in all industries,” he said.

Wall Street analysts applauded the return to growth for Alibaba’s domestic ecommerce platforms Taobao and Tmall. “The main surprise was 10 per cent growth” for the business line, said Robin Zhu of Bernstein. He recognised that that was “still flat” compared with 2021 figures.

“The question is can they continue to improve as they lose market share to competitors?” he added.

Alibaba said it spent $3.1bn repurchasing nearly 36mn US shares during the quarter.