Analysts predict that when Alibaba releases its June quarter numbers on Thursday, its revenue may decrease for the first time in company history, but it may also mark the end of the sales cycle.
According to consensus projections from Refinitiv, the Chinese e-commerce juggernaut is anticipated to announce fiscal first-quarter revenue totaling 203.23 billion yuan ($30.05 billion), a decline of 1.2 percent from a year ago.
The Chinese economy’s recession, Covid’s rise and subsequent lockdowns, regulatory tightening on the domestic tech sector, and all of these factors have contributed to a significant decline in Alibaba’s revenue over the past year.
However, considering that revenue is anticipated to increase in the upcoming quarters, the June quarter may have been a bottom for Alibaba’s performance.
“In aggregate, we believe the soft June quarter results are largely expected by investors and the current focus for the stock is the recovery trend in the 2H, on which we remain positive as the government continues to step up economic stimulus to achieve its GDP growth target,” in a note last month, U.S. Tiger Securities made this statement.
Refinitiv forecasts that the revenue for the September quarter will increase by 7%, and that for the December quarter it may increase by close to 10%.
According to a note published by China Merchants Securities last month, softness in this week’s report will mostly be caused by weakness in the company’s China commerce revenue.
Customer purchases will be affected by weak consumption, and customer management revenue, or CMR, would fall as a result of reduced vendor marketing spending on Alibaba’s platforms, according to China Merchants Securities.
CMR is the amount of money Alibaba makes from the services it provides to retailers on its Taobao and Tmall e-commerce platforms, such as marketing. Alibaba’s CMR suffers as vendors reduce their advertising expenditure.
China Merchants Securities, however, stated that it regards the Chinese commerce industry as having a “gradual recovery … with improving profitability thanks to discipline cost control.”
The upcoming quarters may bring Alibaba some favourable breezes to aid in its revival. There are indications that China’s regulatory onslaught, which resulted in an 18.23 billion yuan fine for Alibaba, is starting to lessen.
In the meantime, the Chinese government launched a variety of economic stimulus measures in May to aid a struggling economy that had been hit hard by the revival of Covid and lockdowns in important cities, including the financial hub Shanghai.
Some analysts, however, do not anticipate Alibaba’s return to its previous rapid growth.
“When I visualize my ‘cone of all plausible outcomes,’ the plurality of scenarios lead to a modest reacceleration of growth back to the mid-teens, but I also see a whole category of scenarios where things get much worse on the fundamentals,” Vice President at CFRA Research John Freeman informed.
“The cone is very wide right now.”
Cloud computing is in the spotlight
Investors are concentrating on cloud computing revenue in addition to Alibaba’s main commerce sector, despite the fact that it currently only represents a small portion of overall sales (less than 10%). Investors consider Alibaba’s cloud initiatives to be essential to the company’s prospects for future growth and profitability, which explains why.
“Cloud growth reacceleration is key for me to turn positive again on the fundamentals because cloud generates much more operating leverage than e-commerce fulfillment and is intrinsically a much more profitable business,” CFRA’s Freeman said.
“Cloud is the reason for most of Amazon’s appreciation in value over the last decade and that could be true for Alibaba eventually.”
The future of the cloud industry is uncertain. According to U.S. Tiger Securities, cloud revenue would increase by just 8% year over year in the June quarter, which would be the slowest rate of growth ever. In contrast, China Merchants Securities predicts growth of 13% year over year, which would represent a little uptick from the March quarter.