Alibaba could see its first ever sales drop, but analysts expect a sales recovery later this year


Alibaba has faced growth challenges amid tightening regulations on China’s domestic technology sector and a slowdown in the world’s second-largest economy. But analysts think the e-commerce giant’s growth could pick up through the rest of 2022.

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Alibaba’s sales could fall for the first time ever when it reports June quarterly results on Thursday, analysts predict, though it could signal the bottom for sales.

The Chinese e-commerce giant is expected to report sales totaling 203.23 billion yuan ($30.05 billion) in the first quarter, down 1.2% from a year ago, according to consensus forecasts from Refinitiv.

Alibaba’s revenues have slowed sharply in the past year due to a slowdown in the Chinese economy, a resurgence of Covid and subsequent lockdowns, as well as tightening regulations in the domestic tech sector.

But the June quarter could spell a bottom for Alibaba’s results as sales are expected to improve in the coming quarters.

Overall, we believe the June soft quarter results are largely expected by investors and the current focus for the stock is the recovery trend in the 2H, on which we remain positive as the government continues to ramp up economic stimulus to increase its GDP growth rate. growth target,” US Tiger Securities said in a note last month.

Refinitiv estimates that September quarter sales are expected to grow 7%, while the December quarter could grow close to 10%.

The softness in this week’s report will mainly come from weakness in the company’s Chinese trading earnings, China Merchants Securities said in a note published last month.

Weak consumption will weigh on customer purchases, while customer management or CMR revenue will also decline due to tighter vendor advertising budgets on Alibaba’s platforms, China Merchants Securities said.

CMR is revenue that Alibaba receives from services such as marketing that the company offers to merchants on its Taobao and Tmall e-commerce platforms. Sellers cutting back on ad spend is hitting Alibaba’s CMR.

However, China Merchants Securities said it sees China’s trading activity “getting a gradual recovery … with improved profitability thanks to disciplined cost control”.

Alibaba could get some tailwind in the coming quarters to help the recovery. There are signs that China’s regulatory crackdown — which has seen Alibaba fined 18.23 billion yuan — is beginning to ease.

Meanwhile, in May, the Chinese government announced a series of economic incentives designed to help an economy ravaged by a Covid resurgence and lockdowns in major cities, including the financial metropolis of Shanghai.

However, not all analysts expect a return to explosive growth for Alibaba.

“When I visualize my ‘cone of all plausible outcomes’, the multiplicity of scenarios leads to a modest re-acceleration of growth into the mid-teens, but I also see a whole category of scenarios where things get much worse at the base.” John Freeman, vice president at CFRA Research, told CNBC via email.

“The cone is now very wide.”

Cloud computing in the spotlight

In addition to Alibaba’s core businesses, investors are also targeting cloud computing revenues, although these still account for less than 10% of total revenue. That’s because investors view Alibaba’s cloud efforts as vital to the company’s future growth prospects and profitability.

“Re-accelerating cloud growth is critical for me to get back on the fundamentals positive, because cloud generates much more operational leverage than e-commerce fulfillment and is inherently a much more profitable business,” said CFRA’s Freeman.

“Cloud has been the reason for most of Amazon’s appreciation in the last decade and that could eventually be the case for Alibaba as well.”

The forecasts for the cloud business are mixed. US Tiger Securities expects cloud revenue to grow 8% year-over-year in the June quarter, which would be the lowest growth ever. China Merchants Securities, meanwhile, forecasts 13% year-over-year growth, which would be a slight acceleration from the March quarter.

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