Alibaba Group revealed it made a profit of US$23.2 billion in its third quarter, an increase of 38% year-over-year, and yet its share price fell 1.76% in early trading after the company gave stark warnings about the effect of the coronavirus, COVID-19, on its business.
Alibaba Group’s profit was made because of the continued growth of its core commerce and cloud computing businesses, despite China, the world’s second-largest economy, growing only by 6.1% in 2019. Net income increased 58% to 52.3 billion yuan (US$7.5 billion) in the same quarter, smashing the 29.6 billion yuan consensus from analysts’ estimates compiled by Bloomberg, South China Morning Post reported.
“Alibaba Group experienced robust growth across our business this past quarter,” said Alibaba Group chairman and CEO Daniel Zhang in a statement.
“Our digital economy reached new heights with another record 11.11 Global Shopping Festival for our merchants and partners. Continued investment in user engagement, especially through social commerce content, contributed to our strong gains in annual active consumers. As a result of its rapid growth, our cloud computing services for the first time generated revenue of over RMB10 billion (US$1.4 billion) in a single quarter.”
Alibaba Group’s shares are up 4% this year but fell after Zhang and Alibaba Group’s Chief Financial Officer, Maggie Wu Wei, Chief Financial Officer, spoke about the hit the coronavirus is having on the company.
“What we’ve seen, particularly in the past 12 to 13 days since the start of February, is that our overall revenue growth rate will be negatively impacted in the March quarter,” said Wei.
Zhang said while coronavirus had hit the business, he saw great potential for growth.
“We are closely monitoring the challenges as well as identifying opportunities for Alibaba’s business, as the situation evolves,” Zhang said. “For our e-commerce business, the delay in employees returning to work following the Spring Festival is preventing merchants and logistics companies from resuming operations.”
Zhang said a significant number of packages were not being delivered to consumers on time because of the outbreak. The company’s food delivery orders have noticeably declined, as restaurants have not resumed operations. Fliggy, Alibaba’s travel arm, has also seen many cancellations for air tickets, hotel reservations and tour packages.
Alibaba has responded by rolling out relief packages including service fee waivers, loans and other financial assistance as well as subsidies for online merchants during this period.
“Seventeen years ago, the e-commerce business experienced tremendous growth after Sars,” Zhang said. “We believe that adversity will be followed by change in behaviour among consumers and enterprises.”
He said people will adapt, changing the way they live and work during this health crisis.
“More businesses and more consumers will have a digital life or digital working style,” he said.