Alibaba shares drop 11% as its slashes guidance and earnings plunge on China’s slowdown

GUANGZHOU, China — Alibaba on Thursday missed revenue and earnings expectations for the September quarter, as slowing economic growth in China weighed on results, adding to regulatory headwinds.

Here’s how Alibaba did in its fiscal second-quarter, versus Refinitiv consensus estimates: 

• Revenue: 200.69 billion yuan ($31.4 billion) vs. 204.93 billion yuan estimated, a 29% year-on-year rise.
• EPS: 11.20 yuan vs. 12.36 yuan estimated, a 38% year-on-year decline.

The company also slashed its revenue guidance for its current fiscal year. It previously expected to bring in 930 billion yuan, which would have been about 29.5% year-on-year growth. But it now expects growth to be between 20% and 23% year-on-year.

Alibaba’s U.S.-listed shares fell 8.2% in pre-market trade. 

China’s economy slowed down in the third quarter of the year, which has also hit consumption. Alibaba has also been on the receiving end of China’s crackdown on its domestic technology industry which has seen a slew of new regulation brought in from antitrust to data protection.

While China’s tech giants have grown largely unencumbered over the past few years, Beijing has looked to clean up some of the behaviors of its corporates. Alibaba was fined $2.8 billion in April as part of an anti-monopoly probe.

Expectations were low coming into the fiscal second-quarter earnings report as a result, with analysts expecting it to be one of the most challenging quarters ever for the Chinese e-commerce giant.

Alibaba’s core commerce business saw revenue grow 31% year-on-year to 171.17 billion yuan, missing expectations.

Customer management revenue, or CMR, is the single largest portion of Alibaba’s sales. CMR is revenue Alibaba gets from services such as marketing that the company offers to merchants on its Taobao and Tmall e-commerce platforms.

CMR grew just 3% year-on-year. Alibaba said this was due to slow growth of sales on its platform “that resulted from slowing market conditions and more players in the China e-commerce market.”

Alibaba has been facing intense competition from its rival JD.com but also newer players like Pinduoduo and even social media companies like TikTok-owner ByteDance.

The company is coming off the back of Singles Day, a huge shopping event in China where e-commerce platforms push heavy discounts and rack up billions of dollars of sales.

Alibaba raked in gross merchandise volume during the 11-day period totaling 540.3 billion yuan ($84.54 billion). Any revenue Alibaba gets from this event will not be reflected in the September quarter.

Alibaba said EBITDA (earnings before interest, taxes, depreciation and amortization), fell 27% year-over-year to 34.84 billion in the September quarter, largely on more investments into new businesses. EBITDA is one measure of profitability. 

Earlier this year, management flagged that it would invest more in some of its fledgling business such as discount app Taobao Deals and its food delivery service Ele.me. Alibaba has also been trying to chase customers in smaller Chinese cities as well through some of these services. 

“This quarter, Alibaba continued to firmly invest into our three strategic pillars of domestic consumption, globalization, and cloud computing to establish solid foundations for our long-term goal of sustainable growth in the future,” CEO Daniel Zhang said in a statement. 

Cloud computing, another area closely watched by investors, grew 33% year-on-year to 20 billion yuan. Adjusted EBITA for the segment was 396 million yuan versus a 567 million yuan loss in the same period last year.