Alibaba logged US$1.185bn losses in its final quarter

Alibaba Group Holding Limited swung to a loss in its final quarter after swallowing a record fine by China’s antitrust regulators, but reported sales that surpassed forecasts as retail consumption in its home market grew with China’s recovery from the coronavirus pandemic.

The company reported a loss of 7.65 billion yuan (US$1.185 billion), after accounting for 18.2 billion yuan in fines to the State Administration for Market Regulation (SAMR). Sales jumped 64 per cent to 187.4 billion yuan for the three months ended March, in line with analysts’ estimates.

Full-year revenue rose 41 per cent to 717.3 billion yuan. The company had projected full-year revenue to jump 82 per cent to a record 930 billion yuan, as consumption in its home market mostly recovered from the coronavirus pandemic.

The strong results propelled Hangzhou-based Alibaba, which operates e-payment services, cloud computing and the world’s largest online shopping platforms, to its most profitable year since its establishment 21 years ago in the apartment of former English teacher JackMa.

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“Revenue was ahead, with customer management revenue broadly in line with expectations, but a larger-than-expected step-up in investment led to a material adjusted Ebita [earnings before interest, taxes, and amortisation] miss,” Atlantic Equities analyst James Cordwell told Bloomberg. Cordwell has an overweight rating on Alibaba.

Alibaba chairman and chief executive Daniel Zhang Yong was keen to play up growth in consumers amid the pandemic.

“We have gone through all kinds of challenges, including Covid-19, fierce competition, as well as the anti-monopoly investigation,” Zhang said in an earnings call with analysts, noting that the company reached the milestone of one billion annual active customers.

“We plan to invest all of our incremental profits in the coming year into core strategic areas such as technology innovation, support for merchants to lower their operating costs, user acquisition and experience enhancement.”

The stronger-than-expected financial earnings show how one of China’s largest home-grown technology companies has managed to emerge from nearly half a year of regulatory scrutiny by SAMR, which began last Christmas Eve and ended in arecord fine on April 10.

The company, which earned a fourth-quarter profit of 3.2 billion yuan in the previous financial year, said it would pay the penalty out of its financial reserves.

Active consumers on the company’s e-commerce retail platforms rose 41 per cent in Alibaba’s last financial year to 811 million users, beating the 788.4 million customers at Pinduoduo, and helping to bolster the annual gross merchandise volume (GMV) to a record US$1.2 trillion. The company aims to grow its customer base to surpass 1 billion by the end of this financial year.

Alibaba is China’s largest provider of cloud computing services, competing with Amazon, Microsoft and Tencent Holdings. The division’s revenue grew 50 per cent last year to 60.12 billion yuan, driven by customers in the internet, public sector and financial industries, with the quarter’s growth increasing 37 per cent to 16.76 billion, Alibaba said.

Alibaba “remains committed to investment in globalisation and the enterprise internet, which could drive long-term revenue and earnings growth, ” Huatai Securities wrote in a research report.

Alibaba’s shares have fallen by about a third since its record in late October, just before China’sregulators abruptly halted the US$35 billion initial public offering.

Since then, the company had been under a cloud of antitrust investigations, with official probes kicking off on Christmas Eve and culminating in the fine on Alibaba last month.

In a sign that the worst may be over, Ant Group – the world's largest fintech companyby value before its IPO was pulled - had its financial license renewed today by the People’s Bank of China. Alibaba’s founder Ma, the controlling shareholder of Ant Group,made a rare public appearance three days earlier at Alibaba’s campus in Hangzhou during the company’s family day. Maretired as Alibab's chairman in 2019 on his 55th birthday.

“The penalty decision [by SAMR] has motivated us to reflect on the relationship between the platform economy and society, “ said Zhang,who took over from Ma, on the company’s earnings call. “As well as our social responsibilities and commitments we believe that the self reflection and adjustments we’ve made, will help us better serve our community of consumers, merchants and our partners into the future.”

Zhang acknowledged on the call that the SAMR penalty had resulted in an operating loss for the quarter, the first in Alibaba’s history as a public company.

“The increase in revenue came mainly from Alibaba’s existing channels and platforms, but it is facing fierce competition now from the likes of Pinduoduo and JD.com,” said Li Chengdong, chief executive of e-commerce consultancy Dolphin Think Tank. “It could lose its edge easily. Besides, the showdown over the anti-monopoly investigation is not over yet, so there’s still uncertainty.”

Alibaba’s share price has dropped 8 per cent since the start of the year, closing at HK$213.2 in Hong Kong on Thursday before the latest quarterly results were announced. Alibaba’s US-listed shares were down about 3 per cent at US$213.3 in early New York trading on Thursday.