China’s e-commerce giant, Alibaba, is facing a significant slowdown in annual growth due to various factors, including slowing consumption, increased competition, and regulatory crackdowns. As a result, the company’s second-quarter results fell short of expectations, leading to a pessimistic outlook for the remainder of the fiscal year.

The Chinese government’s strict stance on antimonopoly and security concerns has negatively impacted the profitability and stock prices of tech companies like Alibaba and Tencent Holdings Ltd. Alibaba, which expected a 20% to 23% growth in revenue for fiscal year 2022, saw its U.S.-listed shares drop by 10.3% in pre-market trading. Tencent also recently reported its slowest revenue growth since going public in 2004.

Alongside the regulatory challenges, China’s economy has experienced supply disruptions, resulting in its lowest growth in a year during the third quarter. Alibaba CEO Daniel Zhang acknowledged that intensified competition and decreased consumer spending were the primary factors contributing to the company’s slowing growth. Zhang expressed the difficulty in determining which factor had a larger impact on earnings.

Despite a 29% rise in revenue growth during the quarter ending on September 30, reaching 200.69 billion yuan ($31.44 billion), Alibaba’s growth rate was the slowest in six quarters. Analysts had expected higher revenue, averaging at 204.93 billion yuan. Alibaba’s China commerce retail business, its primary e-commerce unit, reported a 33% increase in revenue. However, on an adjusted basis, Alibaba earned 11.20 yuan per share, falling short of the average estimate of 12.36 yuan.

JD.com Inc, Alibaba’s main rival, also expressed concerns about weak demand affecting its overall performance in the second half of the year. In response, Alibaba plans to continue investing heavily in areas such as Taobao Deals, an e-commerce service targeting lower-tier cities, and offline retail initiatives.

In addition to the challenges faced by Alibaba, its fintech affiliate Ant Group experienced setbacks due to regulatory actions. Ant’s $37 billion initial public offering was suspended in November 2020, and Alibaba was fined a record $2.8 billion in April 2021 for anti-competitive practices. Consequently, Alibaba incurred its first operating loss as a public company in the same quarter, and its market value has decreased by approximately a third this year.

Despite these obstacles, Alibaba remains committed to pursuing growth opportunities and expanding its presence in various sectors. However, the company’s projections for the coming year indicate a significant slowdown in revenue growth compared to previous years as it continues to navigate regulatory hurdles and intensifying competition.

Useful Links:
BBC: Alibaba’s slowdown in growth due to regulatory crackdowns and competition
Reuters: Alibaba warns of revenue miss and uncertain fiscal year outlook