Alibaba Group Holding Ltd. is feeling the heat as China’s economy decelerates.
China’s dominant e-commerce company will offer clues to the health of the nation’s middle-class, and how it’s navigating the slowdown, when it unveils earnings Jan. 30.
While revenue is expected to have risen 44 percent during the December quarter, that’s its slowest pace of expansion since early 2016 — potentially a sign of spreading consumer malaise.
The company founded by billionaire Jack Ma has been pivotal over the past decade in helping create a $1 trillion-plus Chinese online shopping arena, the world’s largest. But the scorching growth that made it an investor darling has moderated, as shoppers buy fewer washing machines or phones while merchants pull back on marketing. That showed up during Alibaba’s Singles’ Day extravaganza on Nov. 11, when sales growth of 27 percent was down from 2017’s 39 percent.
“China’s internet sector had one of its worst years in 2018, underperforming the market for the first time,” Elinor Leung, an analyst at CLSA, said in a report. “E-commerce results disappointed the most and had the biggest downward earnings revision.”
Alibaba shed about $120 billion of market value through Friday since peaking in June as uncertainty from U.S.-Chinese tensions spooked investors in front-line sectors such as technology. Yet it remains a driving force behind China’s effort to re-balance growth toward services, investing in data to bring retail into the 21st century while creating online platforms like entertainment to compete with Tencent Holdings Ltd.
SuperSymmetry, a Beijing-based consultancy that mines data from millions of online-shopping pages, predicts the value of goods sold on Alibaba’s platform grew by 25.6 percent in the quarter, up from 20.5 percent the previous three months. The firm, which counts well-known venture capital houses Hillhouse, GGV and Sequoia Capital among its customers, says an uptick in sales of staples and necessities probably spurred business.
Alibaba is also expanding rapidly into Southeast Asia and is beginning to experiment with social media, both potential founts of growth. Another promising area is advertising in shoppers’ recommendation feeds: it’s completed the roll-out of that interface on main retail app Taobao, creating new ad real estate.
“Revenue growth could surprise if it starts monetizing recommended feed traffic in 2019,” Leung wrote . “Margin will continue to contract in 2019, but the decline will moderate after the anniversary of Cainiao and Ele.me’s financial consolidation.”
Despite growing at about twice the sector average, Alibaba trades at a 10 percent discount to its peers at about 25 times blended two-year earnings. Its average analyst price targetsuggests room to climb 26 percent over the next 12 months.
“Alibaba stock may not bounce back strongly in the near term, but we would be eyeing entry opportunities into recovering earnings growth momentum in the second half,” Han Joon Kim, an analyst with Deutsche Bank, said in a report.