Alibaba Faces Short-Term Momentum Slump... Requires Long-Term Approach

[Asia Economy Reporter Minji Lee] Following Alibaba's announcement of a large-scale investment, there are forecasts that its stock price will continue to show a sluggish trend for the time being. However, as industry growth continues and government regulations on platform companies have been partially eased, it is expected that its attractiveness will increase in the mid to long term.

On the 19th at the New York Stock Exchange, Alibaba (ADR) stock price has fallen about 17% over the past six months. The stock price weakness has continued due to the Chinese government's strengthened platform regulations and the intensifying conflict between the U.S. and China.

In the first quarter of this year (Q4 of fiscal year 2020), Alibaba recorded a loss for the first time since its listing due to a one-time fine. Quarterly revenue was 187.4 billion yuan, a 64% increase compared to the same period last year, but it posted a net loss of 7.67 billion yuan.

By segment, both retail and new business sales showed growth. Core commerce revenue was 161.3 billion yuan, up 72% from the previous year. Among this, China commerce revenue was 123.2 billion yuan, reflecting the effect of the Sun Art merger, growing 74%. Cainiao and global retail e-commerce segments also grew by 101% and 77%, respectively.

Cloud segment revenue was 16.7 billion yuan, a 37% increase compared to the same period last year. Growth slowed as TikTok, the largest customer contributing 10% of revenue, exited due to external factors. Digital media and entertainment revenue was 8 billion yuan, up 12% from a year earlier. Researcher Sunmyung Hwang of Samsung Securities said, “Although the cloud segment was affected by some customer departures, benefits from mid- to long-term industry growth will continue. The increase in digital media and entertainment revenue is due to the reclassification from the innovation division to the media division following growth in the gaming business.”

The 2022 revenue guidance is expected to increase by 30% from last year to 930 billion yuan, and all net profit increments are planned to be reinvested. The reinvestment is expected to be used to strengthen business competitiveness in Taobao Deals, smart logistics, globalization, and cloud. Researcher Yongje Jeong of Mirae Asset Securities explained, “Concerns about expanded investment within the year and a decline in e-commerce market share may continue. Compared to competitors, the reduction in e-commerce market share is ongoing, and the possibility of short-term market share recovery in e-commerce is limited.”

Researcher Hwang said, “Although net profit estimates have been revised downward in the short term due to the reinvestment announcement, proactive investment moves amid intensified industry competition are positive from a mid- to long-term perspective. Given that industry and earnings growth continue, positive interest in China’s leading platforms in the mid to long term will be maintained.”

This content was produced with the assistance of AI translation services.