Alibaba Group Holding, the Chinese multinational conglomerate, experienced lower-than-expected third-quarter revenue due to a weak retail environment and an ongoing struggle with economic recovery in China. This led to a 4% decrease in the company’s U.S.-listed shares during early trading. To restore investor confidence, Alibaba announced plans to increase its share repurchase program by $25 billion, which will continue until the end of March 2027.

The decrease in revenue can be attributed to Chinese consumers reducing their spending, resulting in a surge in popularity and success for lower-cost domestic e-commerce players like PDD Holdings. In an effort to adapt to the changing market dynamics, Alibaba restructured its business into six units in March of last year, under the guidance of CEO Eddie Wu and Chairman Joe Tsai. Wu, who assumed the role of group CEO in September, will now directly oversee the domestic e-commerce arm of the company, with the intention of reinvigorating growth in the core sectors of e-commerce and cloud computing.

For the quarter, Alibaba’s net income attributable to ordinary shareholders amounted to 14.4 billion yuan ($2 billion), with net income at 10.7 billion yuan ($1.51 billion), representing a significant decrease of 77%. This decline is primarily attributed to valuation changes in equity investments and impairments related to hypermarket operator Sun Art and online video streaming service Youku. Additionally, despite traditionally strong sales events such as Singles Day, the revenue growth for Alibaba’s online shopping sites, Taobao and Tmall Group, was only 2% for the quarter.

Despite these challenges, executives expressed optimism during a post-earnings call regarding the potential recovery of Taobao and Tmall Group’s gross merchandise volume. They emphasized the importance of increasing purchasing frequency to achieve stronger growth in this area. However, the rise of rival PDD as the most valuable Chinese e-commerce company has raised concerns among analysts regarding Alibaba’s cloud business and customer management revenue.

Alibaba’s future plans include canceling the spin-off of its cloud business last year due to uncertainties surrounding U.S. restrictions on the export of chips used in artificial intelligence applications. Additionally, executives stated that the near-term potential for initial public offerings of Alibaba’s Cainiao logistics and grocery business Freshippo remains uncertain due to market conditions not reflecting the true value of these businesses.

Reports suggest that Alibaba is considering the sale of some of its consumer sector assets, including Freshippo, which has been engaged in a price war with Walmart’s Sam’s Club. Despite these challenges, Alibaba’s International Digital Commerce segment, which includes retail and wholesale marketplaces such as AliExpress and Alibaba.com, performed strongly with a 60% increase in orders on AliExpress.

Looking ahead, Alibaba’s leadership recognizes the challenging market conditions and the need for time to address these issues. Chairman Joe Tsai stated that it would be sensible to divest from some of the company’s traditional assets in the physical retail sector. However, Alibaba’s International Digital Commerce segment sees substantial potential for growth in various markets.

In summary, Alibaba’s third-quarter earnings report highlights the challenges the company faces in the current retail environment in China. Through investments in share buybacks and a renewed focus on core businesses like e-commerce and cloud computing, Alibaba aims to regain its growth momentum and maintain its competitive position in the market.

Useful links:
1. Bloomberg: Alibaba Group’s Third-Quarter Revenue Misses Estimates
2. CNBC: Alibaba Shares Fall as Online Retail Business Struggles