China's e-commerce giant Alibaba Group reported better-than-expected fourth-quarter sales on Wednesday, suggesting solid consumer demand in the world's second-largest economy. But this announcement is overshadowed by a slowdown in the Chinese economy and the growing trade war between China and the United States.
On Wednesday, the share price of Alibaba closed higher than the 1.58% after the last profit release.
Its shares have declined since Friday after the United States raised tariffs to around $ 200 billion of Chinese imports, raising tariffs to 25% from 10%.
Joseph Tsai, executive vice president of Alibaba, said the company's results showed the "resilience" of its business against "complex geopolitical and economic conditions" and claimed that long-term macroeconomic trends favor Alibaba. For one, he said, China is moving towards "domestic consumption" and a service-driven economy. China is also destined to become a country that imports more than it exports in the coming years, he told analysts. Moreover, the Chinese middle class – already the largest in the world, with over 300 million – will double in the next 10 years. According to Tsai, less developed cities are fueling that growth.
"We are swimming and floating in the direction of the tide," Tsai said in a conference call with analysts on Wednesday. "All macroeconomic factors are providing the advantage to move our business forward."
The revenue that Alibaba generates from various products and services offered rose 51% to 93.5 billion yuan ($ 13.9 billion) in the quarter ended March 31. Advertising, other customer management fees and commissions from its "core commerce" unit (including its online market platforms Tmall and Taobao have helped increase sales.
"Clearly, the core business is very healthy," said RBC Capital Markets analyst Zachary Schwartzman in a conference call, commenting that the health of Alibaba's core businesses allows him to invest in other lines of business, including the cloud computing.
Other key aspects of Alibaba's earnings
Analysts predict that Alibaba's growth will increasingly come from low-level Chinese cities. "We will continue to invest in lower and rural level customers in lower cities," Alibaba CEO Daniel Zhang said.
The number of annual active consumers on Alibaba's Chinese retail markets rose 102 million to 654 million in the 12 months ended March 31. The least developed cities accounted for over 70% of the increase, Alibaba said. The so-called third, fourth or fifth tier cities in China have a total population of 500 million. Consumption from these smaller cities will triple in the next 10 years, said Alii Ali on the earnings call.
Cloud computing is a bright spot: like Amazon in the United States, Alibaba is strengthening its commitment to grow its cloud computing service and to successfully confront Amazon and Microsoft to increase its share of the growing global cloud services market. Alibaba's fourth-quarter Cloud Computing revenue rose 76% to the equivalent of $ 1.15 billion. It is one of the fastest growing companies in the company.
However, unlike Amazon's AWS cloud computing service, Alibaba's cloud service continues to lose money. By way of comparison, Amazon's offer is a jewel in the crown of profit and represents half of Amazon's operating income in the most recent reported quarter.
Alibaba's domestic success makes it a target for competitors. Alibaba has built a growing empire to attract consumers to spend within its ecosystem of products and services, and the competition is catching on.
According to data from Euromonitor International, while Alibaba is still in first place in the growing e-commerce market in China, its share of the country's "internet retailing" market has fallen to 41% in 2018, down from 45% of the 2013. In contrast, JD The .com share more than doubled to 34% over the same period. Suning and Vipshop have also increased their share of the e-commerce market to 4.1 percent and 2.7 percent respectively, according to Euromonitor.