Alibaba's Sales Growth Slows Despite the E-tailer's Continued Dominance

    Alibaba Group reported its Q2 2019 (quarter ending Sept. 30, 2018) on Friday morning. The company's revenue grew 54% year-on-year but missed expectations.
    Alibaba reported revenue growth of 54 percent year-on-year in the quarter ending Sept. 30, but missed analysts' forecasts. Photo: Shutterstock
    Matthew LubinAuthor
      Published   in Fashion

    Citing global macroeconomic uncertainty, Alibaba Group lowered its revenue guidance by 4-6 percent for fiscal-year 2019 (year ending March 31, 2019) while also reporting that their quarterly revenue missed analysts’ expectations. While the e-commerce giant predicted slower short-term growth, it remained upbeat about middle-class consumption in China, which should drive sales of consumer staples and lifestyle products. That’s good news for Alibaba’s online travel agency, Fliggy.

    Founded in 1999, Alibaba is one of the largest internet retail businesses in China, and with operations now in over 200 countries, it’s become one of the ten largest companies in the world. It also single-handedly turned last year’s Singles' Day into the world's largest shopping day, garnering 25.4 billion in sales during the November 11 holiday.

    Alibaba’s revenue in Q2 2019 (quarter ending September 30, 2018) was 12.4 billion (RMB 85.1 billion), which is a year-on-year increase of 54 percent.

    The company noted that sales were helped by luxury brands, such as Stella McCartney, Theory, Sergio Rossi and Qeelin, opening flagship stores on Tmall Luxury Pavilion during the quarter, and it has brought more onboard since the start of the Q3 2019. While the company did not indicate its sales expectations for this year’s shopping festival, it said it “will unleash the synergies of online/offline integration as we deploy the New Retail business model and technologies in 200,000 smart stores in China across multiple retail categories.”

    While the company saw impressive revenue growth in the quarter, it was not enough to satisfy Alibaba investors, whose shares in the company fell by 2.45 percent on the Nasdaq on Friday. Its diluted EPS for the quarter was 1.11 (RMB 7.65) per share. Revenue from its core commerce business grew at its slowest pace for a September quarter since 2016 at 56 percent year-on-year.

    Despite this, annual active consumers on its China retail marketplaces increased by 25 million users in the 12 months ending June 30, 2018, to 601 million. Meanwhile, mobile monthly active users on the marketplace platforms increased by 32 million from June to the end of September, reaching a total of 666 million. The company noted during the earnings call that there is weakness in China on large-ticket items such as home appliances and cars, but consumer staples, cosmetics, and apparel remained strong sellers for the company.

    While the company mostly depends on domestic consumption for its businesses (shielding it to some extent from the ongoing trade war with the U.S.) it’s also looking to expand its investments overseas. Such moves could boost the company’s bottom line while the yuan continues to depreciate against the U.S. dollar. Alibaba’s international retail segment revenue grew 55 percent year-on-year in the quarter.

    Meanwhile, gross merchandise value on Tmall grew 30 percent year-on-year. Alibaba also cited improvements to its user experience, including recommended items, that will continue to drive sales.

    The disappointing quarterly earnings, coupled with the lowered guidance, will likely lead shares of Alibaba (already down about 12 percent year to date) further down until it reports revenue from its 10th-anniversary Singles’ Day shopping event on November 11—a shopping holiday that will showcase over 180,000 participating brands.

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