Alibaba looks to cut costs as profits halve

Despite the lockdowns in China and the war in Ukraine, Chinese online platform Alibaba has still managed to increase sales. However, profits are plummeting, so the retailer is announcing cost cuts.

Sharp drop in profits

The Chinese zero-covid policy is weighing down Alibaba’s results. The e-commerce giant still saw revenue grow 9 % in the fourth quarter of its broken fiscal year (ending 31 March): that is better than expected, but still the lowest growth rate since the group’s IPO in 2014. Worryingly, however, the company’s EBITDA fell by 30 %.

For the full fiscal year, Alibaba posted a 19 % revenue growth, lower than the 20 – 23 % target the group had set in November. Net profit fell by 59 % as the lockdowns have had a severe impact on the supply chain. In addition, Chinese consumers’ demand for non-essential products is falling: in March, retail sales in China fell by 3.5 %.

Cutting costs

Alibaba is also struggling outside China, however: its Southeast-Asian subsidiary Lazada sees the growth of online orders slowing down now that shops in the region are open again. In Europe, AliExpress suffers from the impact of the war in Ukraine and the amended European VAT rules – since 1 July 2021, VAT and customs charges must be paid on all packages from outside the European Union, there is no longer an exception for cheap packages from China.

CEO Daniel Zhang has announced that in the new fiscal year, his company will focus even more on cost control and operational efficiency. However, he does not want to commit himself to concrete prospects for the current fiscal year, because the uncertainties linked to the pandemic are too great.