Alibaba pushes cost cuts as its revenue growth remains sluggish in China

BLOOMBERG

Alibaba Group Holding Ltd is pushing aggressive cost-cutting to boost profit as growth in its domestic China market remains anemic, a conservative shift for a tech giant that once spent aggressively to dominate wide swaths of the economy.
The online retailer reported net income rose a better-than-anticipated 69% to 46.8 billion yuan ($6.8 billion), but revenue rose just 2.1% to 247.76 billion yuan in the December quarter, slightly ahead of projections.
Alibaba’s shares closed down slightly after climbing 6% in early New York trading.
The anemic sales growth underscores tricky economic conditions after China abolished Covid restrictions in December. Its core Chinese commerce business slid 1% in the quarter — the third straight decline for the unit that underpins the broader empire. Cloud computing revenue, typically one of the company’s fastest-growing divisions, inched up a disappointing 3% to 20.2 billion yuan.
Beijing has cracked down on the country’s tech giants over the last two years, forcing fundamental changes in the business models of companies including Alibaba. The e-commerce pioneer is also navigating increasingly tough competition from arch-rival JD.com Inc as well as up-and-comers such as PDD Holdings and ByteDance.
Persistent declines in business on Alibaba’s commerce platforms “raises the risk that Alibaba will struggle to retain shoppers and merchants if rivals such as JD.com and ByteDance’s Douyin offer them more subsidies in the next 10 months,” Bloomberg Intelligence analysts Catherine Lim and Tiffany Tam wrote after the results. Some investors worry that a sustained recovery in consumer spending may take time, and any rebound might be slow. At the same time, Chinese internet firms from JD to Meituan and PDD are revving up efforts to outdo each other since Beijing began to wind back a bruising crackdown on the tech sector. That’s spooked investors worried about a resurgence in the margin-eroding price wars of years past.
Executives brushed off concerns Alibaba will join in a market-share grab, arguing that fundamental technological changes such as demand for computing for AI will prop up its bottom line.