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For Chinese tech companies, 2022 is a tough year as businesses are hit by strict COVID restrictions and economic slowdown. Alibaba Group Holding Limited (NYSE: BABA ), often referred to as the Amazon of China, has also been affected, with a tight regulatory environment and ongoing supply chain disruptions compounding the problem.
Shares of the US-listed e-commerce behemoth have fallen about 70% since their peak more than two years ago. After collapsing in the last couple of years last year, the stock moved into recovery mode but failed to maintain the momentum. The weakness could be attributed to uncertainty related to COVID in China, the company’s main market that has yet to emerge from the grip of the coronavirus.
In Recovery Mode
However, the market has reopened rapidly since the latest shutdown phase, after the authorities eased the zero COVID policy. Sales growth is expected to accelerate this year as reopenings gather steam. Stocks look set for a major upswing in the coming months, helped by a sell-off in investor confidence. Those who want to invest in BABA may not get the chance to buy cheaper shares this year. Long-term investors can look for decent returns, according to experts’ bullish view on the stock.
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The economy is showing signs of a rebound and regulatory curbs in the tech sector are easing. This can have a positive impact on profitability, and allow companies to achieve their goals of creating long-term and sustainable shareholder value. Alibaba’s sales, which are expected to be almost flat in mid-2022, should get a boost from a recovery in household consumption amid consumer sentiment.
The company’s cloud business remains a bright spot, thanks to the growing demand for cloud services and the digital transformation caused by the pandemic. At the same time, margins have benefited from management’s efforts to increase profitability through initiatives like cost control and long-term investment in the business.
Beat Earnings
Alibaba’s profit, on a per-ADS basis, exceeded estimates for the fifth consecutive quarter while profit topped the Street view for the third time. Third-quarter earnings increased 14% year over year to $2.79 per ADS, driven by a 2% increase in revenue to $36 billion. Earnings beat estimates by a wide margin. Higher sales in non-core business segments more than offset core weakness China trade division, which was hurt by a reduction in the company’s ‘marketing’ that it sold to merchants on the e-commerce platforms Taobao and Tmall.
Check out this space to read management/analyst comments on monthly reports
Commenting on the results, Alibaba CFO Toby Xu said, “During the past quarter, we continued to improve operating efficiency and cost optimization which resulted in strong profits. Our net cash position remains strong and we continue to generate healthy cash flow. During the quarter ended December 31, 2022, we repurchased 45.4 million ADSs with valued at approximately US$3.3 billion in share repurchase programs as part of its ongoing commitment to increasing shareholder returns.
Although BABA rallied on Thursday morning after the company posted stronger-than-expected third-quarter results, the momentum waned as trading progressed. Shares traded down 2% in the afternoon.
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