Chinese Alibaba shares fall by about 6% after the earnings report showed an 86% decline in profits.

Reuters
—

China’s Alibaba Group Holding Group Inc. reported an 86% drop in fourth-quarter profit on Tuesday due primarily to valuation changes from equity investments, sending its US-listed shares down nearly 6% in early trading even though revenue outpaced… Expectations.

It also announced that it would revive a plan first mooted in 2022 to upgrade its secondary listing in Hong Kong to a primary listing, while retaining its primary listing in New York. It aims to complete this initial dual listing by August.

China’s largest e-commerce group by market share has had a turbulent year since announcing the biggest shake-up in its 25-year history in March 2023, splitting into six units and refocusing on its core businesses, including domestic e-commerce.

Consumers in China have also been spending cautiously after the COVID-19 pandemic amid a prolonged economic slowdown and real estate stagnation.

Alibaba’s focus on low-cost goods in response to cautious consumer spending helped boost domestic e-commerce sales, leading to 7% growth in total revenue in the quarter ended March 31.

But the group’s net income reached 3.27 billion yuan (US$452 million), compared with 23.52 billion yuan a year ago.

Ali Baba (Baba) Shares fell 5.6% in early New York trading.

Chairman Joe Tsai told analysts on a post-earnings call that the company is seeing “early signs” of growing confidence.

“We have seen green shoots in some discretionary items such as clothing and electronics,” he said. “We know that Chinese consumers have the ability to spend, but this willingness to spend reflects their confidence about the future.”

Quarterly revenue at its domestic commerce arm, Taobao and Tmall Group, rose 4% year-on-year as order volume increased by double digits.

Alibaba’s domestic commerce revenues in recent quarters have been overshadowed by the significant growth of low-priced, discount-focused platforms like PDD (PDD) Pinduoduo holding company and ByteDance-owned Douyin.

“The strong growth in GMV and orders at Taobao and Tmall is particularly impressive given the challenges posed by competitors and market conditions,” said Jacob Cook, CEO of e-commerce consulting firm WPIC Marketing + Technologies.

The group reported revenue of 221.87 billion yuan in the three months ended March 31, compared to consensus estimates of 219.66 billion yuan, according to LSEG data.

Analysts expect strong growth from Alibaba’s international digital commerce arm, given its investments in building global market share and global consumers’ appetite for low-cost goods from China.

The sector achieved 45% growth, compared to an expected 39% rise in revenue, according to LSEG data. It also saw losses nearly double to 4.1 billion yuan ($567 million) from 2.2 billion a year ago, as it invested heavily to remain price competitive and shorten delivery times.

The group’s other “core” business, the cloud division, saw AI-related revenues from external customers, a relatively new business, grow at a triple-digit rate year-on-year.