Alibaba Group Holding Ltd. BABA -3.85% has set up a task
force to review some of its businesses in response to an antitrust probe in
China, its chief executive said Tuesday, as the threat of a regulatory overhaul
looms over the Chinese e-commerce giant founded by Jack Ma.
In an investor call after releasing quarterly results, Chief
Executive Officer Daniel Zhang reiterated that Alibaba is cooperating with
regulators. Striking a conciliatory tone, he emphasized Alibaba’s important
role in China’s economy, saying the company—operating two popular e-commerce
platforms—is ready to take on more social responsibility as an online platform
tied to the country’s economic development.
“Although the changing regulatory landscape applicable to
fintech and internet platform companies presents near-term challenges to
Alibaba, we regard them as important opportunities for reassessing and
improving our business practices,” Mr. Zhang said.
Alibaba and its fintech-affiliate Ant Group Co. have come
under scrutiny after Mr. Ma made a speech in October criticizing Chinese
President Xi Jinping’s campaign to combat financial risks as well as regulators
for stifling innovation. That led Mr. Xi to personally call off Ant’s
much-anticipated initial public offering.
In December, China’s top market regulator launched an
antitrust probe into Alibaba over allegations that it used its dominant
position to pressure merchants into selling exclusively on its own platform.
That same month it also fined Alibaba, along with two other major e-commerce
platforms, for product pricing that misled consumers.
Since his October comments, Mr. Ma has largely vanished from
public life. He resurfaced briefly in January, appearing in a video to give a
speech to a group of teachers from rural schools. While the Chinese billionaire
stepped down as executive chairman of Alibaba in 2019, his appearance sent the
company’s share prices up more than 8% that day.
Even as Alibaba faced regulatory scrutiny, its earnings for
the fiscal third quarter ended in December exceeded analysts’ expectations. Net
income attributable to ordinary shareholders was 79.43 billion yuan, equivalent
to $12.28 billion, up 52% from the same period a year earlier, on strong
consumer activity amid an economic rebound in China.
Sales for the quarter rose about 37% to 221.08 billion yuan,
ahead of the 214.29 billion yuan analysts polled by FactSet had expected. Core
commerce sales rose 38% to 195.54 billion yuan. Alibaba, running two of China’s
biggest online shopping sites, is often seen as a barometer for Chinese
Meanwhile, Alibaba’s report showed that Ant recorded 14.5
billion yuan, equivalent to $2.24 billion, in estimated net profit in the three
months to September 2020, before its blockbuster initial public offering was
called off in early November. Alibaba owns a third of Ant and reports its share
of profits from the owner of Alipay one quarter in arrears.
Ant earlier reported 45.6 billion yuan in revenue for the
September quarter while it was preparing to go public last year, but didn’t
disclose the profit figures. Chinese financial regulators recently told Ant to
restructure into a financial holding company, essentially subjecting Ant’s
fast-growing businesses to tighter regulations, The Wall Street Journal
reported last week.
Mr. Zhang said Ant is in the process of developing a
rectification plan. “Ant Group’s business prospects and IPO plans are subject
to substantial uncertainties. Therefore, currently we are unable to make a
complete and fair assessment of the impact that these changes and uncertainties
will have on Alibaba Group,” he said.
Alibaba’s business has benefited from a strong economic
recovery, as China has returned to work following the Covid-19 pandemic but
continued a trend of purchasing goods online. China was the only major world
economy to grow last year, expanding by 2.3% after a historic contraction in
the early months of the year.
However, the Hangzhou-based company has faced increasing
competition from other platforms, most notably upstart Pinduoduo Inc., which
caters to more price-conscious consumers.
Steven Zhu, senior analyst at research firm Pacific Epoch,
said Alibaba’s growth will likely be hindered by pressure from both e-commerce
rivals such as JD.com Inc. and Pinduoduo Inc., and also short-video platforms
like Douyin, TikTok’s sister app in China owned by Bytedance Ltd.
“As long as you have traffic, you can do e-commerce,” Mr.
Zhu said. “That will probably be a long-term trend that will curb the explosive
growth from Alibaba.”
To court more customers, Alibaba has invested in offshoots
of its popular Taobao shopping app, such as discount-shopping app Taobao Deals
to counter Pinduoduo’s expansion in smaller markets, and the Taobao Live
platform, to capitalize on sales and advertising in live streaming. It has also
pushed further into the fast-growing grocery shopping and delivery market with
a controlling stake in Sun Art, a major retail chain in China.
Mr. Zhang said while the company has experienced greater
competition, he emphasized Alibaba’s strengths in consumer reach and seller
services such as management tools. He added that while Alibaba has some
exclusive arrangements with merchants, it is readily apparent that many sell
their goods through other channels as well.
The company’s cloud-computing business notched its first
quarter of positive adjusted earnings before interest, taxes and amortization
as revenue grew 50% to 16.12 billion yuan. Revenue from its logistics business,
Cainiao Network, grew 51% year over year.
Record sales from the Nov. 11 annual shopping festival,
known as Singles Day, helped. Alibaba raked in the equivalent of a record $74.1
billion by the end of Nov. 11, after extending the event from one to 11 days.
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