Alibaba, the Chinese giant known for its e-commerce dominance, faced a significant setback in the fiscal fourth quarter as its net profit plunged, leading to a drop in its stock price. The company reported revenue of 221.9 billion yuan ($30.7 billion), slightly higher than the LSEG consensus estimates of 219.66 billion yuan. However, its net income attributable to ordinary shareholders plummeted by 86% year on year, causing concern among investors. As a result, shares of Alibaba were down by around 5% in premarket trading in the United States.
The past year has been tumultuous for Alibaba, with the company undergoing its largest-ever corporate structure overhaul in 2023. Alongside this, there were several high-profile management changes, including the appointment of Eddie Wu as the new chief executive in September. Despite these efforts, Alibaba has been struggling with a slowdown in consumer spending in China, leading to increased competition from low-cost players like Pinduoduo (PDD).
In an attempt to instill confidence in shareholders, Alibaba announced earlier this year that it would increase its share buyback program by $25 billion through 2027. The company has also been focusing on ramping up its overseas expansion to counterbalance the domestic slowdown. Although revenue for the Taobao and Tmall division, which encompasses Alibaba’s e-commerce business in China, saw a modest growth of 4%, there are signs of a slight recovery in the core e-commerce business in the March quarter.
One of the main areas of concern for investors is Alibaba’s cloud computing division, which has struggled to reignite growth. Despite plans for a spin-off last year being scrapped, the company’s cloud computing unit only saw a 3% year-on-year revenue increase. Alibaba noted that it is working on reducing “low-margin project-based” contracts in the cloud division and expects artificial intelligence-related products and public cloud services to offset the impact of declining revenues from project-based contracts.
CEO Eddie Wu expressed optimism about the future, vowing to “reignite” growth in the e-commerce firm through further investments. Despite the profit drop in the fiscal fourth quarter, Alibaba remains committed to its strategies and is confident in its ability to return to growth. The company reported triple-digit growth in AI-related revenue during the March quarter, indicating promising developments in that area.
Alibaba’s recent financial struggles highlight the challenges that the company is facing in the ever-evolving landscape of e-commerce and cloud computing. Despite setbacks, Alibaba remains determined to overcome obstacles and regain momentum in its core business areas. Investors will be closely monitoring the company’s performance in the coming quarters to assess its progress towards sustainable growth and profitability.
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