(Bloomberg) -- Alibaba Group Holding Ltd. reported anemic growth in its core Chinese e-commerce business in the September quarter, dragging down financial results that benefited from progress in its international and cloud divisions.
Overall sales rose about 5% after the internet pioneer’s domestic e-commerce operation eked out just 1% growth, slightly weaker than analysts anticipated. The international division, which encompasses Lazada and the Temu-like AliExpress, expanded retail revenue 35% — again outshining all other segments. The cloud unit’s revenue growth accelerated to more than 7%, suggesting it’s beginning to claw back market share lost to state rivals.
Alibaba’s shares fell as much as 3.7% in New York trading. The company is reporting hours after the latest Chinese economic data showed encouraging signs for the world’s second largest economy. Retail sales grew at their strongest pace in eight months.
Still, the company that once dominated online commerce across the country is struggling to regain its footing after a bruising government-led antitrust investigation that limited its expansion opportunities and bolstered rivals like PDD Holdings Inc. Chief Executive Officer Eddie Wu is more than a year into his effort to turn around the company.
Alibaba ADRs Advance on 2Q Profit Beat: Street Wrap
Wu on Friday expressed hope that Beijing will unleash more stimulus measures to revitalize consumers, echoing comments from his counterparts at Tencent Holdings Ltd. and JD.com Inc. this week. But like the others, he too stopped short of making a call on when a rebound will emerge.
“We are optimistic about the government’s macro stimulus policies and are confident in their positive long-term economic impact,” Wu told analysts on a conference call.
In August, regulators said Alibaba has ceased all monopolistic acts as they wrapped up a three-year rectification period for the company.
Its revenue climbed to 236.5 billion yuan ($32.7 billion) in the September quarter, versus an average estimate for 239.4 billion yuan. Net income rose 58% to 43.9 billion yuan, though a big part of that came from gains in investments.
“We are more confident in our core businesses than ever and will continue to invest in supporting long-term growth,” Wu said.
Alibaba’s domestic commerce business shrank for the first time in at least a year during the June quarter, driving home the malaise plaguing the country and its leading online retailer. Taobao and Tmall — Alibaba’s signature e-commerce services — have since September begun to charge merchants a software service fee that’s common on rival platforms like PDD and JD.com.
The policy change, coupled with new marketing tools on Alibaba’s flagship sites, could boost revenue at its core division over the long run.
There are other promising signs. Alibaba reported robust sales growth for the month-long Singles’ Day shopping season — the marquee event it invented more than a decade ago that now serves as a barometer for Chinese consumer spending.
JD.com and Tencent have also outlined signs of recovery in the broader economy, though both warned that a fuller rebound will take time. But some analysts warn that the lack of comprehensive data is hampering efforts to gauge the economy’s trajectory. Alibaba, for instance, didn’t disclose overall sales for Singles’ Day.
What Bloomberg Intelligence Says
Alibaba’s steeper-than-expected drop in fiscal 2Q Taobao-Tmall profit, despite meeting consensus for a wider sequential ex-direct revenue gain of 3.5%, raises the risk that 3Q earnings may slide below last year’s level. The lift to cloud profitability from more lucrative public services, which beat estimates for the second straight quarter, may offset the drag on overall margin.
- Catherine Lim and Trini Tan, analysts
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The economic downturn had also weighed on Alibaba’s once fast-growing cloud business, which hosts computing for corporate clients. After years of driving growth across its businesses, the division had managed marginal growth in recent quarters.
For now, two key divisions have helped offset the drag from online commerce.
Alibaba’s Cainiao logistics arm and its international division have ranked among its best-performing businesses, helping prop up growth. But Alibaba’s Singapore-based Lazada arm is fighting a resurgent Sea Ltd. and even ByteDance Ltd., which recently expanded its footprint in Asia by swallowing Indonesia’s Tokopedia.
Wu, who replaced Daniel Zhang at the helm more than a year ago, is focused on enhancing its twin businesses of commerce and cloud computing, while making bets on AI technology for the longer term. He and Chairman Joseph Tsai — two of the company’s earliest employees — are longtime close confidants of co-founder Jack Ma.
“Despite intensifying e-commerce competition in recent months, Taobao and Tmall achieved breakthroughs in core user retention and new user growth,” Wu said in prepared remarks. “Our cloud business maintained rapid growth in AI-related products.”
--With assistance from Zheping Huang, Vlad Savov and Debby Wu.
(Updates with Alibaba’s US trading from third paragraph)
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