Alibaba’s E-Commerce Growth Slows in 1Q

While Alibaba’s commerce ecosystem continued to thrive in the first quarter, it did so at a slower rate as it faces increased regulatory scrutiny.  

In the first quarter, Alibaba core commerce revenue increased by 35%, which was well off its pace of 70% in the previous quarter. After years of e-commerce dominance in China and abroad, Alibaba is now facing competition from an emerging array of smaller competitors such as Pinduoduo and JD.com.

In order to boost its slowing growth, Alibaba is broadening its reach into new areas through Idle Fish, which is expanding from a marketplace for second-hand products trading to a consumer-to-consumer community-based marketplace for products and services, and Taobao Deals.

“Another strategic area for our incremental investment is new retail, where we have built a multi-format business model to serve a wide range of consumer needs,” said Alibaba CEO Daniel Zhang, during the company’s earnings call earlier this month. “Today, our consumers can enjoy one-hour door-step delivery of products ordered online through Freshippo and Taoxianda, or same-day/next-day delivery of groceries purchased from Tmall Supermarket, or order value-for-money products delivered next day to neighborhood pick-up points.

“We believe such a multi-format, multi-service-level new retail infrastructure built on highly efficient digitalized supply chain and fulfillment models can best satisfy the diversified demands of different consumer segments in different regions.”

Zhang said Alibaba’s community marketplace business grew approximately 200% quarter-over-quarter in terms of gross merchandise value (GMV) while it expanded the gross floor area of the company’s regional distribution centers at a faster rate (260%) quarter-over-quarter to provide better logistic support for business growth.

Also see:Alibaba Executive: Tips to Form an E-Commerce Game Plan.”

As of the first quarter, Zhang said global active consumers across the company’s ecosystem hit 1.18 billion.

“During the first fiscal quarter, our annual active consumers grew from 890 million to 912 million in China, and from 240 million to 265 million outside of China, representing quarterly net adds of 45 million in total,” according to Zhang.

Zhang said the company was focused on investing in its business across its core strategic areas, including technology innovation, support programs for merchants to lower their operating cost, user acquisition and experience enhancement, merchandising and supply chain capabilities, infrastructure development and new business initiatives.

Regulatory landscape

Alibaba Holdings Group, along with other major Chinese tech companies such as Tencent, is facing a clampdown from regulators that are seeking to eliminate tax breaks while also curbing the use of customers’ personal information. Regulators are concerned that China’s tech giants are using their large market and internet presence to further dominate markets in China. In April, Alibaba was fined $2.8 billion by China’s State Administration for Market Regulation as part of an anti-monopoly investigation.

Zhang said Alibaba was in the process of studying the new requirements to gauge the potential impacts on its businesses.

“We believe all these new regulations aim to foster the healthy development of the internet industry over the long term, in the context of China’s economic growth and livelihoods improvement,” he said. “ This is consistent with Alibaba’s long-term mission and vision, to serve SMEs with digital technology, to serve the underprivileged groups, and to serve our consumers’ demands for a better life.”

Alibaba by the numbers

Alibaba reported revenue of  RMB205.74 billion ($31.86 billion), which was an increase of 34% from a year ago. Net income was RMB45.14 billion ($6.99 billion) and non-GAAP earnings were $6.46 billion. On an adjusted basis, the company earned 16.60 yuan per share.

Wall Street analysts had projected revenue of 209.39 billion yuan with adjusted earnings of 14.43 yuan per share, according to Refinitiv. In a sign of optimism, Alibaba increased its share repurchases from $10 billion to $15 billion.

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