Alibaba Group Holding Ltd. (NYSE: BABA) has fallen short of its quarterly revenue projections amidst pervasive economic uncertainty and waning consumer spending in China that impacted its revenue in the East Asian nation. The Chinese e-commerce and tech giant had an adjusted profit of $2.08 per American Depository Share compared to estimates of $2.05 while its U.S.-listed shares had declined by 0.3%.
With the Chinese economy struggling and bogged down by critical issues like elevated job insecurity among the youth and a real estate crisis, domestic consumers are reducing their spending on discretionary items, leading to a significant drop in retail sales across the entire retail sector. Large online retailers like Alibaba and JD.com, which also missed its quarterly revenue estimates, are offering discounts and promotions to boost sales.
Analyst Vinci Zhang says that Alibaba typically dominates the skincare, cosmetics, and sportswear retail segments. However, the M Science analyst notes, these segments are ‘highly discretionary’ and are more likely to be affected when consumers cut their spending.
In addition to the economic uncertainty that has impacted Alibaba’s business in its domestic market, the online retailer is also experiencing major competitive pressure from discount retailers such as ByteDance’s retailer Douyin, and PPD Holdings-owned Pinduoduo that have used large discounts to attract cost-conscious customers across most retail segments.
This has left Alibaba struggling to woo consumers and led to diminished sales numbers. Alibaba’s reported revenue for the previous quarter was $32.72 billion compared to revenue estimates of $33.155 billion.
While Alibaba’s online retail business has struggled in the past few months, revenue from its cloud intelligence division surged by 7% to $4 billion. Revenue from the firm’s public cloud offerings increased by double digits, while its artificial intelligence-related products grew by triple digits.
With Alibaba investing in generative AI extensively over the past year, Alibaba CEO Eddie Wu says that Gen AI is a once-in-a-generation opportunity. The firm also debuted its AI-powered broadcasting system at the Paris 2024 Olympic Games with great success.
Alibaba’s online retail sales in foreign markets also rose in the previous quarter, increasing by 29% to $4.3 billion due to increased global demand for low-cost Chinese goods. The e-commerce giant has been working to improve user experiences on its online marketplaces and recently began allowing Alibaba users to make payments with WeChat Pay, a move that could allow more users to access Alibaba platforms such as Taobao and Tmall.
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