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Alibaba boasts strong growth but remains under regulatory cloud

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Alibaba Group Holding Ltd (NYSE:BABA) reported strong growth from its online shopping and cloud computing in the final quarter of 2020.

The Chinese tech giant’s revenues came in at RMB 221bn (US$33.9bn) in the three months to December 31, up 37% on the same period a year ago.

Underlying earnings (EBITDA) increased 22% to RMB 68.4bn (US$10.5bn).

“Thanks to the rapid recovery of China’s economy, Alibaba had another very healthy quarter,” said Daniel Zhang, chairman and chief executive officer, who took the reins from founder Jack Ma in 2019.

The group generated free cash flow of RMB 96.2bn (US$14.8bn), which enabled investment in strategic areas.

Finance chief Maggie hailed the positive profits for the Alibaba Cloud business during the quarter and that the Cainiao logistics network was operating cash flow positive.

Shares in the company were down ahead of the release of the results after-hours overnight.

Investors have been concerned about Ma’s status in Beijing lately.

China’s State Administration for Market Regulation launched an investigation into Alibaba in December over monopolistic behaviour, the first probe of its kind for a Chinese tech company.

Regulators said the instigation was to focus on practices including Alibaba’s tactic of using exclusive agreements with merchants to force them to only sell their products on its platform.

Chinese officials also last year halted plans to spin off and float Ant Group, Alibaba’s financial-technology affiliate, saying there needed to be more supervision of internet finance.

The company said in the results statement that it has established a “special taskforce” to conduct internal reviews of its business.

“We approach this antimonopoly investigation with a cooperative, receptive and open mind set,” said Zhang on a conference call with reporters.

“We have a deep appreciation of the significant social and public responsibilities of operating our platform. Beyond complying with regulatory requirements, we will continue to do our best to fulfill our responsibilities to society.”

Zhang said a revamp of the Ant Group business is still ongoing, with its prospects and fund-raising plans now “subject to substantial uncertainties”.

These results “can’t help but be overshadowed by the recent reappearance of their leader Jack Ma,” said retail analyst Andy Halliwell at digital consultancy Publicis Sapient.

“If the Chinese government is looking to crack down on outspoken entrepreneurs and take a more conservative line with their larger tech businesses, then this will dent investors’ confidence in the brand.”

He added: ”Many are looking at the business and wondering where the next wave of growth will come from.”

Story by ProactiveInvestors


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