(Bloomberg) – Sales at Alibaba Group Holding Ltd. have increased at a faster rate than expected, providing a much-needed boost to the company struggling with a regulatory crackdown on Jack Ma’s technology empire.
Revenue rose 37% to 221.1 billion yuan ($ 34.2 billion) in the three months ending in December, compared with an average of 215.3 billion yuan in analysts’ forecasts. Net profit attributable to shareholders increased by 52% to 79 billion yuan. Alibaba has established a special task force to conduct internal reviews and is actively communicating with antitrust regulators about meeting its requirements, the company said in the earnings release.
The larger-than-expected gains could be overshadowed by an ongoing antitrust investigation that has already wiped out more than $ 130 billion of the e-commerce giant’s value since its record in October. The uncertainty began in November, when regulators first torpedoed the Ant Group Co.’s record initial public offering, then launched its investigation of the online retailer. Alibaba’s shares have fallen 13% since Ant’s aborted debut, the worst performance on Hong Kong’s Hang Seng index.
“Business performance is strong and many feel that stocks are undervalued compared to the roadmap and trajectory of some of their businesses,” said Andy Halliwell, analyst at technology consultancy Publicis Sapient, in a research note after the result profits. “However, if the Chinese government is looking to crack down on outspoken entrepreneurs and adopt a more conservative line with its larger technology businesses, it will affect investor confidence in the brand and could create an opening for others to explore.”
Read more: Jack Ma appears for the first time since Ant, Alibaba Crackdown
Alibaba’s shares recovered some of their losses after Ma reappeared in public during a live video conference last month, in an apparent sign that the worst-case scenario – such as a government-led takeover or the dissolution of his companies – is probably now off the table. Few expect Beijing to back off completely in its campaign to tighten up Ant, Alibaba and the rest of China’s high-tech giants. But the partial stock recovery suggests that investors are beginning to price the risk of a crackdown that would put the country’s wealthiest entrepreneurs and innovative companies at serious risk.
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Alibaba’s cloud division reported its first positive adjusted earnings before interest, taxes and amortization, a milestone for business growth. The segment’s revenue grew 50%, driven by customers from the public, retail and internet sectors. Cainiao, its logistics unit, was also operating with positive cash flow, the company said.
Annual active consumers increased to 779 million in the December quarter, generating a 38% increase in their core business. Alibaba recorded sales of $ 75 billion in its annual Singles Day promotions last November, easily surpassing its 2019 mark after the company started promotions in advance and added additional services to the count for the first time. The increase in spending came even as general retail sales fell 3.9% last year, with consumption lagging behind industrial activity in the broader economic recovery.
But investors are questioning whether Alibaba will be able to sustain this growth as Beijing intensifies oversight of Chinese tech giants, particularly in online commerce. Ma’s company, which was once the flagship of China’s rapidly growing private companies and the expanding Internet sphere, now faces penalties of up to 10% of its revenue or about $ 7.8 billion if it is discovered which violated the rules against practices such as forced exclusive agreements with merchants known as “Pick one of two”, predatory pricing or algorithms that favor new users.
Any regulations that require Alibaba to implement a total suspension of enforced exclusivity policies could reach Tmall’s sales by almost a tenth in 2021, before sales return to 18-20% annual growth in 2022 and beyond, according to Octahedron Capital Management, based in San Francisco LP. At the moment, less than 10% of the most sold brands are exclusive, they estimate.
The regulations may also undermine its ability to move rivals from JD.com Inc. away from Pinduoduo Inc., whose 730 million annual consumers are approaching Alibaba’s user base. Meanwhile, short video platforms like ByteDance Ltd. and Kuaishou Technology, supported by Tencent, are also taking advantage of live streaming as a means of sales to gain a greater share of e-commerce. Beijing-based ByteDance revealed its earnings on Singles Day for the first time in 2020, with Douyin, the Chinese version of the global sensation TikTok, reserving 18.7 billion yuan in gross merchandise.
Ant contributed 4.8 billion yuan to Alibaba’s profit for the quarter, indicating that the company earned 14.5 billion yuan in the three months ending in September – before its $ 35 billion IPO was sunk – since its profits were a quarter behind Alibaba. As part of the crackdown, Ant was instructed to “rectify” its loan, insurance and wealth management services. With its affiliate still in the process of developing the rectification plan, Alibaba said on Tuesday that it is unable to make a “complete and fair assessment” of the impact on its business.
Tighter capital requirements can hamper Ant’s ability to grant loans with the same freedom, increasing the challenges for its sister company’s business operations. Although Alibaba CEO Daniel Zhang said the company does not quantify how much of its sales are financed by Ant loans, the fintech giant provides small unsecured credits to about 500 million people through Huabei (Just Spend ) and Jiebei (Just Lend) platforms. They are used in part to pay for clothes and makeup purchases at the Taobao market or for travel booked on Fliggy, the group’s online travel site.
Read more: Review of the credit unit of the ant plans to avoid a sharp drop in loans
Tighter regulatory scrutiny about mergers may also prevent the tech giant from snatching up promising startups in emerging sectors or taking huge stakes in other businesses to avoid competition. Alibaba – which in the past few years has spent billions in stakes in the hypermart operator Sun Art Retail Group Ltd. and the e-commerce platform Kaola by NetEase Inc. – was fined 500,000 yuan in December for failing to seek approval before increasing its stakes in the department store department Intime Retail Group Co. in 2017.
(Updates with details)
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Originally published