China’s Alibaba Group Holding has seen its growth rate drop to a low single-digit again as fierce competition and broader economic woes took a heavy toll. Analysts say Alibaba, once China’s largest company by market cap, is unlikely to roar back to life for the rest of 2024 because revitalization strategies are simply taking longer to show effect.
With revenue missing expectations and profit plunging 70% year-on-year for the final quarter of 2023, shares of the dual-listed e-commerce company closed 6.14% lower in Hong Kong Friday. They extended the overnight decline from New York, where the company fell almost 6%. The stock gave up earlier gains as initial enthusiasm over a new and supersized $25 billion share repurchase program soon faded.
And as China lumbers into the Year of the Dragon, Alibaba isn’t starting it—nor likely to end it—with a bang.
Revenue growth at its core e-commerce unit may remain at single digits, says Wang Xiaoyan, a Shanghai-based analyst at research firm 86Research. This is because the Chinese e-commerce pioneer has been pivoting to selling lower-priced products amid cutthroat competition with upstart PDD Holdings, which at one point overtook Alibaba as China’s largest e-commerce company by market value. Founded by billionaire Colin Huang, PDD, which was founded 16 years after Alibaba, has been grabbing market share by offering heavily discounted goods to China’s budget-conscious shoppers amid a struggling economy.
Under a new management team that has only been in place since December, Alibaba succeeded in persuading consumers to place orders more frequently. But the average spending on each order may have come down by as much as 10%, estimates Wang, while the fees collected from merchants have been reduced in part to stop them from switching to PDD.
Yet winning back lost grounds from its fierce rivals “won’t be that fast,” says Wang. “With the new CEO and management changes at the Taobao and Tmall Group, time is needed to integrate various resources together,” she adds.
During Thursday’s analyst call, Alibaba itself pointed to “generating synergies” from its various business units as a source of strength. The company appears to be walking back from a massive corporate overhaul announced less than a year ago, when it said that the sprawling giant would be split into six smaller business units ranging from logistics to cloud computing, and let each pursue independent fundraising opportunities.
After shelving the listing plan of its Cloud Intelligence Group, management said Wednesday that the group would continue to explore separate financing for its business units, but it isn’t in a hurry given the challenging market conditions. Billionaire Joe Tsai, cofounder and chairman of Alibaba, also noted that the company is working to exit non-core investments, such as those in brick-and-mortar retail, to focus more on online commerce and cloud computing.
The company is reportedly considering selling its InTime department store unit, which was valued at $4 billion in a 2017 privatization deal led by Alibaba. While that may mark a reversal of its previous ambition to transform offline stores with technologies, analysts say the move makes sense.
“On one hand, it would allow Alibaba to concentrate its resources and strengthen its core e-commerce business, which is what it excels at,” says Kenny Ng, a Hong Kong-based securities strategist at Everbright Securities International. “On the other hand, since the assets to be sold are currently facing losses, selling them would also be beneficial for Alibaba’s short-term performance.”
Ng notes that the company may report “more noticeable” growth in the second half of 2024, when the broader consumption market in China stands a chance of recovering if more favorable policies to stimulate demand are introduced. But conditions in the beginning of the year have been challenging, as consumer prices fell again in January to indicate persistent deflationary pressure.
Alibaba’s cofounders, meanwhile, have signaled confidence in the company’s long-term outlook. While reversing his previous plans to trim stakes in the e-commerce behemoth, billionaire cofounder Jack Ma recently bought about $50 million worth of company stock. Chairman Tsai separately purchased $150 million of stock around the same time.
86Research’s Wang says the group’s cloud computing unit may return to double-digit revenue growth first, as it cuts more low-margin projects and focuses on public cloud services that are easier to scale up.