Beijing and Covid put pressure on Alibaba’s profitability

Published in :

Beijing (AFP) – Black Thursday: Chinese e-commerce giant Alibaba announced a nearly 60% drop in net profit in 2021 and heavy quarterly losses, against a backdrop of an economic slowdown and tighter tech-oriented regulations.

Since late 2020, authorities have been adamant against certain previously widely tolerated practices by digital giants in terms of personal data collection and competition.

Beijing thus multiplied the blows against powerful internet companies, prevented from raising money internationally or fined for abuse of dominant position.

These moves cost the industry billions of dollars in market capitalization.

Long considered a successful model in China, Alibaba was the first to suffer punishment from public authorities.

The country’s economy is also hampered by anti-Covid restrictions, with consumption at a two-year low and unemployment close to an all-time high, which in turn is penalizing e-commerce companies.

In this context, Alibaba on Thursday reported a significant decline in its profit over the past year.

It amounted to 61.9 billion yuan (8.6 billion euros), down from 150.3 billion yuan a year earlier – a drop of 59%.

In the last quarter of its staggered financial year, the group also shows some 2.3 billion euros in losses, which it attributes to “the resurgence of the epidemic in China, particularly in Shanghai”.

Under pressure

China has been facing a resurgence of the epidemic for several months now, which is affecting various parts of the country to varying degrees.

Under the Covid zero health strategy, several cities were blocked, including the economic capital Shanghai, which penalizes production and consumption.

The fragility of family spending is weighing heavily on e-commerce companies, accustomed until now to exponential growth with the trivialization of internet shopping.

Alibaba said it was unable to set targets for 2022 “given the risks and uncertainties related to Covid-19”.

The group, long a pioneer of online commerce, has faced increasingly aggressive competition in recent years, particularly from Pinduoduo and JD.com.

Also present in finance, Alibaba is also under pressure in this sector.

Passersby outside the headquarters of e-commerce giant Alibaba in Hangzhou on May 26, 2022. STR AFP

In late 2020, regulators thus derailed the massive IPO of its subsidiary Ant Group.

The company, which was seen to raise US$34 billion in Hong Kong and Shanghai, had been prevented from doing so in extremis by the authorities, worried about potential financial risks.

In the process, Jack Ma disappeared from the radar for two and a half months, a silence that raised many questions, mostly of a political nature.

Today, the nervousness remains strong.

Sadness 2.0

When state broadcaster CCTV earlier this month announced the arrest in Hangzhou of a certain “Mr. Ma” in the name of national security, Alibaba’s stock plummeted.

CCTV had to clarify that the person in question was not Jack Ma, but a namesake, to reassure the markets.

According to Bloomberg, this setback was enough to cause Alibaba to briefly lose $26 billion in market capitalization.

Alibaba’s underperformance is far from an isolated case in China in the tech world.

A passerby in front of e-commerce giant Alibaba's headquarters in Hangzhou on May 26, 2022
A passerby in front of e-commerce giant Alibaba’s headquarters in Hangzhou on May 26, 2022 STR AFP

On Thursday, search engine Baidu announced about 120 million euros in first-quarter losses.

As early as last week, Tencent had reported quarterly earnings in near-stagnation over a year.

This is the first time since 2004 that the Chinese internet and video game giant has seen slow growth.

According to Chinese economic information media Caixin, Tencent is preparing to lay off 10% of its workforce.

Threatened by a slump in activity in China, an engine of the economy, power welcomed several tech chiefs in the past week, raising hopes of a fix with this sector that has been under pressure for months.

Leave a Comment