Alibaba Sales Surge But Cloud Growth Slows
Alibaba's sales surge but cloud growth slows
Alibaba reported earnings for the first time since China slapped the tech giant with a record fine — and the results were not nearly as bad as some had feared.
Alibaba (BABA) lost approximately $1.2 billion in the first quarter, primarily due to the $2.8 billion fine imposed on it earlier this year by Beijing. Net income, excluding that, increased 18% to $4 billion.
Revenue increased by a healthy 64% year over year to $28.6 billion. This exceeded analysts' expectations and is another indication of the Chinese economy's recovery following last year's Covid-19-induced slump. Alibaba also stated that it anticipated revenue growth of approximately 30% in its fiscal year 2020 compared to fiscal 2021.
Nonetheless, Alibaba's shares, which are down more than 10% this year and 35% from their 52-week high, fell about 6% Thursday. Cloud revenue increased at a slower rate than in recent quarters.
Alibaba is one of China's most prominent and successful private businesses, co-founded by legendary entrepreneur Jack Ma. However, the company's shares have struggled since late last year, when Beijing began tightening the screws on the country's technology champions.
Chinese President Xi Jinping has stated that the country's regulatory crackdown on the internet sector is a top priority for 2021, with the goal of "maintaining social stability."
Alibaba was a particularly high-profile target. The penalty was imposed after antitrust regulators determined that the online shopping giant had acted monopolistically, and it was equal to 4% of Alibaba's sales in China in 2019.
When the fine was announced, Alibaba stated that it accepted the penalty "sincerely" and "will ensure our compliance with vigilance."
Alibaba cloud momentum slows
However, it appears as though the more stringent regulatory environment had little effect on Alibaba's core businesses.
The company announced Thursday that it had 925 million mobile active users at the end of the third quarter, up 23 million from the end of December.
"Our overall business generated significant growth on a sound foundation," Alibaba Chairman and CEO Daniel Zhang said in a statement.
"We remain optimistic about China's consumption economy's growth, which is being fueled by the acceleration of digitalization in all spheres of life and work," he added.
Cloud revenue increased 37% year over year, an impressive rate of growth but a slowdown from previous quarters.
Alibaba stated in its earnings release that this was due to a decline in sales from a large customer with a significant international presence who decided to discontinue using its services. Alibaba did not disclose the identity of the customer.
The global cloud computing market is extremely competitive. Alibaba is not alone in its struggle with Chinese rival Tencent (TCEHY). It is also competing for cloud contracts with Amazon (AMZN), Microsoft (MSFT), and Google owner Alphabet (GOOGL).
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