Dusseldorf The Chinese online retailer Alibaba is growing more slowly than expected and is struggling with a significant decline in profits. Organically, the company’s sales increased by 16 percent in the three months between July and September, significantly less than analysts expected. The profit shrank by 39 percent compared to the same period last year. The company cited higher investments as the reason. Alibaba is feeling “economic headwinds and growing competition,” said CEO Daniel Zhang.
The figures reflect the slower economic growth in China, as well as the stricter regulation of domestic Internet platforms. The latter are intended to limit the market power of the large Internet platforms and promote competition. In response, Alibaba had significantly increased its investments in new business areas and announced that it would donate billions in the coming years.
In the second quarter, which ends at Alibaba in September, the group achieved sales of the equivalent of $ 31.4 billion and thus fell short of analysts’ expectations. For the full year, Alibaba is now expecting sales growth of 20 to 23 percent instead of just under 30 percent. It would be the lowest earnings growth since it debuted in New York in 2014. Alibaba’s fiscal year ends in March 2022.
Growth is likely to weaken further in the current quarter. This is indicated by the sales figures for the sales campaign around the so-called Singles’ Day on November 11th. there. Alibaba sold goods worth the equivalent of 84.5 billion dollars in the almost three-week campaign period. At competitor JD.com the sales volume was $ 54.6 billion. However, JD.com grew by 28 percent, significantly more than Alibaba, which grew by 8.5 percent. For the industry leader, it was the smallest increase since Singles’ Day was invented.
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However, the numbers also need to be assessed in the context of growing regulatory pressure. Experts assume that against this background, Alibaba deliberately did not want to announce any new spectacular sales records. The promotions around the day of sale were much more cautious than in previous years.
General prosperity instead of profit maximization
So far, the focus has been on growth, but now the focus is shifting to “the role you play in society,” said Marketing Director Chris Tung, commenting on the sales figures. The Chinese government expects companies to do more to promote the political goal of “general prosperity” in the future. Alibaba therefore announced in September that it would donate $ 15.5 billion over the next five years.
However, the numbers also confirm a trend that has already emerged in the Chinese e-commerce market: Alibaba is growing more slowly than its largest competitor JD.com. The market share of the industry leader is likely to fall below 50 percent for the first time this year, forecasts the market research company Emarketer.
The e-commerce group, which was able to grow largely unchecked for years and dominated the Chinese market, is now more strictly regulated. China’s finance, internet and competition authorities have introduced a whole series of new laws that are supposed to regulate the country’s platform companies more tightly and limit their market power.
In November last year, the planned mega IPO of the Alibaba financial services subsidiary Ant was banned for a short time. Alibaba still holds just under a third of Ant. In May, China’s competition watchdogs sentenced Alibaba to a record fine of 18.2 billion yuan, the equivalent of around 2.8 billion dollars.
The reason: The company had exploited its dominant position and prevented traders from selling their goods on other shopping platforms. This practice has been banned from the company.
Competition wins market share
Competitors such as JD.com and Pinduoduo have responded with increased investments in order to win over the users of Alibaba.
JD.com, which also released figures today, reported an increase in sales of more than 25 percent compared to the same quarter last year. The company “outperformed industry growth in China in the third quarter,” emphasized CEO Lei Xun. However, growth came at the expense of profitability. JD.com posted a loss of around $ 400,000 in the past three months.
Investors recently hoped for an end to the wave of regulation. However, earlier this week China’s market supervisors expressed “a high level of concern” about the group-buying practice, which is very popular in China. Those interested in buying a certain product form larger groups in order to receive higher discounts. Since pioneer Pinduoduo has recently wrested market share from Alibaba, the group has also stepped into the business and invested billions.
The resulting price pressure is putting smaller businesses under pressure and thereby damaging the development of existing supply chains and disrupting social order, the overseers complained. A clear warning shot for Alibaba and Co.
More: Showdown on Singles’ Day: Alibaba feels tough competition