(Bloomberg)—Alibaba Group Holding Ltd.’s revenue growth returned to levels not seen since the pandemic, fueling hopes of a Chinese economic recovery despite worsening U.S. relations.
China’s most valuable corporation reported better-than-expected 34% sales growth in the June quarter, a shade off the 38% it managed in the December quarter before COVID-19 shut down swaths of the country. That underscored how the ecommerce giant is riding a pick-up in consumer spending in a country among the first to recover. But CEO Daniel Zhang said it will keep a close eye on “very fluid” U.S. policies toward China.
President Donald Trump has made a tough position on the world’s No. 2 economy a key element of his campaign in the lead-up to the U.S. elections, sanctioning or threatening to clamp down on the Asian country’s biggest technology companies. Both sides have clashed on issues from the coronavirus to trade, while lawmakers brandish regulations that may force Chinese corporations like Alibaba off U.S. bourses. Its shares slid about 2% in New York.
“We face uncertainties from not only the global pandemic but also increasing tensions between U.S. and China,” Zhang told analysts on a call. “We are assessing the situation and any potential impact carefully and thoroughly, and will take necessary actions to comply with any new regulations.”
Alibaba reported sales of 153.8 billion yuan ($22.2 billion) and net income of 47.6 billion yuan in the June quarter, both surpassing projections. Some of that stemmed from record sales during a June shopping event this year, as heavy discounting lured shoppers who had delayed purchases during the national lockdown. It said annual active consumers in China had now grown 16 million to 742 million, powering a 34% rise in its core commerce business.
Ant Group, Alibaba’s 33%-owned financial affiliate, grew profit roughly six-fold to $1.3 billion in the March quarter, offering a glimpse into its earnings power ahead of a mega initial public offering in Hong Kong and mainland China.
Landing in the White House’s cross-hairs could in the long run endanger a roughly $695 billion empire spanning online retail, food delivery and internet computing. Trump, who has issued orders barring American individuals and companies from doing business with Tencent Holdings Ltd.’s WeChat and ByteDance Ltd.’s TikTok, has said he’s considering extending a ban to other Chinese companies. Congress is moving closer to legislation that could bar Chinese firms from trading on U.S. bourses. And India is growing increasingly hostile, though Alibaba said the withdrawal of its UCWeb browser service there shouldn’t have a material impact on its overall business.
But growing competition at home is the more immediate challenge. Its market position is being chipped away by multiple competitors. Upstart Pinduoduo Inc. has lured small-town buyers away with cheaper bargains. Arch-foe JD.com Inc. has ventured beyond its traditional strength in consumer electronics into groceries, with supermarket goods the biggest contributor to its first-half revenue among all product segments.
More broadly, social media companies like ByteDance and Tencent are increasingly reaching out to shoppers through live-streaming, after COVID-19 fueled an unprecedented boom in online entertainment. Alibaba’s Taobao Live has championed the use of influencers to hawk everything from lipstick to crayfish. While rival video apps like Tencent-backed Kuaishou and ByteDance’s Douyin typically direct traffic to Alibaba platforms, they are now seeking to handle the transactions by themselves.
Competition in food delivery is also intensifying. Alibaba’s Ele.me app now delivers flowers, housekeepers and masseurs in addition to lunchboxes, as Tencent-backed rival Meituan Dianping diversified into beauty products and handsets.
“The biggest challenge for Baba going forward is that ecommerce is no longer a two-horse race. JD is challenging them at the top end of the market, and PDD are winning in many of the fast-growth lower tier markets which have been elusive to Baba, and is also aggressively expanding into higher tier cities and cross border,” said Mark Tanner, founder of Shanghai-based marketing and research agency China Skinny.
“Social/video commerce is taking an increasing share of the pie as all forms of digital consumption morph in sales channels—which arguably presents the biggest red flag.”
Alibaba owns and operates Taobao and Tmall, which hold the No. 1 and No. 2 spots in the ranking for Digital Commerce 360 Online Marketplaces.
Victoria’s Secret owner reports better-than-expected sales
“On the online channel, we have obviously been experiencing holiday-like volumes really since the start of the pandemic,” CEO Andrew Meslow said on an earnings call transcribed by Seeking Alpha.
The company isn’t providing guidance for the rest of the year given the widespread uncertainty but did say that Victoria’s Secret performed better than expected. L Brands said it is testing out strategies to spread out spending for the holidays, since health safety measures in will limit capacity in stores. The holiday rush accounts for the majority of the company’s annual sales and profits, it said in a presentation.
Still, the Columbus, Ohio-based company sees “meaningful expense pressure” from increased stores costs such as payroll and supplies for the rest of the year. The company cited “the new labor model imposed by social distancing protocols” and wage inflation in the U.S. supply chain and higher costs related to e-commerce and shipping.
Estee Lauder to trim 3% of global workforce
As part of the two-year initiative, management will close 10% to 15% of Estee Lauder’s free-standing stores and eliminate some department-store beauty counters as consumers shift to more online purchases. Estee Lauder said it expects to take restructuring and other pretax charges of between $400 million and $500 million.
“We are better aligning our brick-and-mortar footprint to improve productivity and invest for growth,” CEO Fabrizio Freda said in a statement. He said the company enters its new fiscal year with “cautious optimism.”
The company has been preserving cash to manage the business during the pandemic. Measures including employee furloughs, temporary salary reductions and cuts to capital investments have led to nearly $1.1 billion in savings, the company said.
Estee Lauder’s caution reflects the severity of the beauty industry’s uphill climb as it recovers from pandemic-related sales declines. Overall, cosmetics sellers have fared better than other non-essential retailers, such apparel and fashion accessories, because consumers have retained interest in skin-care products like eye creams and moisturizers, even if they’re not buying clothing.
In the fourth quarter that ended June 30, net sales fell 32% to $2.43 billion. The few bright spots, including a bounceback in the Asia-Pacific region as well as double-digit sales growth in the skincare business, wasn’t enough to offset big declines in makeup and fragrance.