Shares in China’s Alibaba plunged 10% after trading opened in Hong Kong on Friday following the company’s disappointing earnings – a big fall in second quarter net income – and its warning of slower growth.
The company forecast that annual revenue will grow at its slowest pace since its 2014 stock market debut as its results missed expectations due to slowing consumption, increasing competition and a regulatory crackdown.
On Thursday the Chinese e-commerce group reported an 81% fall in net income to $833.5 million in the second quarter, missing a Reuters consensus estimate of $3.76 billion.
Alibaba cited high investment and losses from equity investments as the cause of the drop.
Revenue rose 29% to $31.4 billion in the three months to September, compared with the same period last year, missing analysts’ forecast of $32.3 billion.
New York-listed shares of Alibaba Group Holding, which expects fiscal year 2022 revenue to grow by 20-23%, slumped more than 11% on Thursday.
Daniel Zhang, Alibaba’s chief executive, said increasing competition and slowing consumption in China were the primary causes for slowing growth.
Maggie Wu, Alibaba’s chief financial officer, told analysts that competitors “have been increasing investment to acquire users and show a high level of spending”. Alibaba’s competitors have been luring merchants away from its Taobao e-mall business with lower costs.
Beijing has cracked down on technology companies, citing monopolistic abuses and security reasons. Another tech giant, Tencent, last week posted its slowest revenue growth since it went public in 2004.
Chinese shoppers have become more cautious about spending, in part due to new coronavirus outbreaks. This, along with supply disruptions and deleveraging in the property sector has contributed to China’s economy suffering its slowest growth in a year in the third quarter.
However, Barclays analyst Thomas Chong said Taobao continued to be an attractive platform.
“Domestic consumption, globalisation and cloud continue to make progress, with Taobao the destination for consumers with different preferences,” he said.
Chong said “solid progress” made in a number of initiatives including attracting a rising percentage of new consumers from lower-tier cities.
- Reuters, with George Russell
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