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Alibaba Group Holding on Thursday reported first-quarter revenue that missed market expectations as domestic e-commerce sales came under pressure as Chinese consumers spent cautiously amid an economic downturn.
China’s stagnant economic recovery, coupled with continued weakness in the real estate market and high job instability, have weakened consumer confidence and spending power in the world’s second-largest economy, dealing a comprehensive blow to global companies.
Alibaba also faces stiff competition from rivals such as JD.com and discount-focused retail platforms such as Pinduoduo and ByteDance-owned Douyin.
Alibaba reported revenue of 243.24 billion yuan ($33.98 billion) for the quarter ended June 30, compared with analysts’ average estimate of 249.05 billion yuan, according to the London Stock Exchange.
The company’s domestic e-commerce unit saw revenue decline 1% despite double-digit order growth driven by the number of buyers and their purchase frequency.
China’s e-commerce giants have had to resort to deep discounts and promotions to lure shoppers, putting pressure on profit margins across the retail sector.
“The decline in Chinese consumer spending is real,” said Vinci Zhang, an analyst at M Science. “Consumers are spending less, buying less and becoming more rational. So Alibaba and JD.com are likely to continue to face challenges going into the second half of the year.”
Sales during China’s mid-year e-commerce promotion festival fell for the first time ever in June, despite efforts by platforms to run promotions over a longer period of time, according to third-party estimates.
Alibaba, which is listed in the United States, reported quarterly profit that exceeded market expectations, and its shares reversed early losses in early trading on Thursday to rise about 2%.
Alibaba executives have long said that increasing purchasing volumes and launching new tools for merchants will boost the platform’s advertising and customer management revenue in the future.
In a call with analysts Thursday, executives reiterated expectations for new monetization tools to boost revenue growth in the second half of the fiscal year.
Alibaba Group Chief Executive Officer Jihan Wu said the top priority for domestic e-commerce units Taobao and Tmall Group is to enhance user experience to boost gross merchandise volume (GMV), a measure of sales levels.
“As market share stabilizes, we can turn our focus to monetization,” he said.
In March 2023, Alibaba announced the largest personnel changes in the company’s history, splitting into six divisions and focusing on core businesses including domestic e-commerce.
Revenue at Alibaba’s international e-commerce unit rose 32 percent to 29.3 billion yuan, helped by investments to expand its global presence and growing global demand for China’s low-priced goods.
Revenue at Alibaba’s cloud computing unit rose 6% to 26.55 billion yuan, faster than a 3% increase in the previous quarter, helped by rising public cloud adoption and strong demand for artificial intelligence-related products.
The company has taken steps to reduce low-margin project-based contracts and said the expansion of its cloud infrastructure has helped it lower prices for all its cloud products.
Net profit attributable to ordinary shareholders for the quarter was RMB 24.27 billion, compared with RMB 34.33 billion in the same period last year.
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