Alibaba, the Chinese e-commerce giant, experienced a dip in its shares as its quarterly revenues fell short of expectations in its first earnings report since the company split into six units. The disappointing performance resulted in a 1.4% decrease in premarket trading of Alibaba shares in the United States.
For the quarter ending on March 31, 2022, Alibaba reported revenue of 208.2 billion Chinese yuan ($29.6 billion), a 2% increase compared to the previous year. However, this fell short of the Refinitiv consensus estimate of 210.2 billion yuan. Non-GAAP diluted earnings per share were 1.34 yuan, lower than the expected 2.08 yuan, representing a 35% year-on-year increase.
This quarter is significant as it reflects China's reopening following the country's relaxation of strict Covid-19 controls in December 2021. Despite China's economy showing signs of recovery with a 4.5% growth in the first quarter and an 18.4% rise in retail sales in April, Alibaba's sales did not benefit as anticipated.
As the operator of two major online shopping platforms in China, Taobao and Tmall, Alibaba's performance serves as an important indicator of the country's e-commerce sector. China accounts for nearly 50% of global online shopping transactions.
Notably, these earnings figures are the first to be released since Alibaba underwent a significant organizational restructuring. The company divided its operations into six divisions: Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics, Global Digital Commerce Group, and Digital Media and Entertainment Group. Analysts viewed this move as a potential signal of Beijing's easing crackdown on tech companies.
Recently, China has shown signs of easing regulatory restrictions on the tech industry, making enforcement more predictable. This has sparked optimism among some investors, including Michael Burry of "The Big Short" fame, who increased his bets on Chinese e-commerce companies Alibaba and JD.com. Burry doubled his stake in Alibaba to $10.2 billion and raised his JD.com holding to $11 million.
In the tech sector, investors are also paying close attention to Alibaba's developments in artificial intelligence (AI). The company has been working on its own AI chatbot product called Tongyi Qianwen, similar to OpenAI's ChatGPT. Tencent's President, Martin Lau, mentioned the company's progress in building foundation models for AI chatbots after reporting strong revenue growth.
Overall, Alibaba's latest earnings report, falling short of expectations, indicates the challenges faced by the company in the evolving Chinese e-commerce landscape. However, with regulatory restrictions potentially easing and signs of economic recovery, the future performance of Alibaba and other tech giants in China remains a subject of interest for investors.
