Alibaba posts 58% gain in quarterly profit, warns coronavirus crisis will impact revenues

This article is co-written by Zen Soo.

Ecommerce giant Alibaba expects new challenges ahead, as it warned of the potential negative impact of the new virus’ outbreak on the global economy.

Daniel Zhang Yong, Alibaba’s executive chairman and chief executive, described those prospects after the company reported a 58% increase in profit for the quarter ended December 31, boosted by the ecommerce giant’s record sales during Singles’ Day – the world’s largest shopping festival – in November.

Daniel Zhang, Alibaba CEO, at the company’s Hong Kong IPO debut / Photo credit: Alibaba

“The [coronavirus] outbreak is having significant impact on China’s economy, and may potentially affect the global economy,” said Zhang in an earnings call with analysts on Thursday. “It will present near-term challenges to the development of Alibaba’s business across the board.”

While the company cannot accurately estimate the full financial impact of the health crisis on its business at present, there is currently a weakness in its China retail platforms and local consumer services.

“What we’ve seen, particularly in the past 12 to 13 days since the start of February, is that our overall revenue growth rate will be negatively impacted in the March quarter,” said Maggie Wu Wei, Alibaba’s chief financial officer.

On Thursday, Alibaba reported revenue of 161.5 billion yuan (US$23.2 billion) in its fiscal third quarter, up 38% from 117.3 billion yuan a year ago. That improvement was made on the back of steady growth at its core commerce and cloud computing businesses, despite a slowdown in the domestic economy and China’s protracted trade war with the US.

Net income jumped 58% to 52.3 billion yuan in the same quarter, ahead of the 29.6 billion yuan consensus from analysts’ estimates compiled by Bloomberg.

The financial results of Alibaba, parent company of the South China Morning Post, are seen by many investors as a proxy for consumer spending in China and an important barometer of the country’s economic health.

The deadly coronavirus outbreak, however, may have some negative impact on China’s ecommerce market, the world’s largest. Government efforts to contain the spread of the virus have seen offline entertainment, commercial, and transport activities across the country grind to a halt.

Small merchants on various online retail platforms have been hit hard, as labor supply and logistics are constrained by government measures to restrict travel and lock down a number of communities. The health scare already dampened consumer spending during the Lunar New Year holiday.

There were 59,804 confirmed cases of coronavirus and 1,367 fatalities from the disease, officially known as Covid-19, in mainland China as of Thursday morning, according to the country’s National Health Commission. The virus has also spread to at least 24 countries.

“We are closely monitoring the challenges as well as identifying opportunities for Alibaba’s business, as the situation evolves,” Zhang said. “For our ecommerce business, the delay in employees returning to work following the Spring Festival is preventing merchants and logistics companies from resuming operations.”