Alibaba Group Holding Ltd has issued a warning about a potential decline in revenues for its e-commerce businesses this quarter, attributing it to the impact of the coronavirus outbreak on supply chains and deliveries in China. Despite beating analyst estimates and achieving record transactions during its Singles’ Day shopping event, the company revealed that the delayed return to work following the Lunar New Year, caused by the virus outbreak, had disrupted merchants and led to delays in order fulfillment. The closure of numerous restaurants due to the outbreak has also resulted in a decline in food delivery orders compared to the previous year. Limited delivery capacity for goods from Alibaba’s Hema supermarkets has prevented the company from fully capitalizing on the surge in demand. Consequently, most of Alibaba’s businesses reliant on physical goods sales are likely to experience a revenue decline this quarter.
However, there is some positive news amidst the gloomy forecast. More people are gradually returning to work in large cities, and logistics networks are also slowly recovering. This recovery is evident in Alibaba’s enterprise chat app, DingTalk, which experienced “explosive growth” as remote workers and schools turned to it for online lessons during the crisis. Analysts believe that although Alibaba’s earnings will be impacted by the coronavirus outbreak in the next few quarters, the company’s strong business, particularly its cloud computing division, will contribute to a more positive outlook.
Alibaba’s revenue in the December quarter, driven by the Singles’ Day shopping extravaganza, reached a record $38.4 billion, as disclosed in its Q3 report. The company primarily generates revenue by selling advertising and promotional services to third-party merchants on its e-commerce platforms, Taobao and Tmall. Alibaba also stated that it was supporting the fight against the coronavirus outbreak by ensuring the supply of daily necessities and implementing relief measures for its merchants.
The outbreak and its subsequent effects have had a significant impact on Chinese companies, including layoffs, funding challenges, and difficulties in restarting production after an extended Lunar New Year holiday due to disrupted supply chains. Given that Alibaba is considered a reflection of China’s consumer economy, the epidemic is expected to further strain the country’s economy, particularly following hopes of a resolution to the trade war with the United States.
In Q3, sales in Alibaba’s core commerce business rose by 38% to 141.48 billion yuan, while revenue from its cloud computing unit surged by 62% to 10.72 billion yuan. Net income attributable to ordinary shareholders also saw a significant increase, rising to 52.31 billion yuan from 33.05 billion. Excluding items, the company earned 18.19 yuan per American Depository Share (ADS), surpassing analysts’ expected 15.75 yuan per ADS. Total revenue for the quarter amounted to 161.46 billion yuan, exceeding estimates of 159.28 billion yuan.
Following the release of the Q3 report, Alibaba’s U.S.-listed shares rose by nearly 1% to $226.30 in premarket trade.