At the end of 2021, Alibaba recorded its slowest turnover growth in seven years. The net profit also melted away. Yet investors and analysts continue to believe in the Chinese e-commerce giant.
Waiting for spring
Alibaba performed below expectations last quarter: in the three months leading up to the end of December, revenue grew by 10 % to 242.6 billion yuan (34.4 billion euros), making it the slowest growth since the Chinese technology and retail giant went public in 2014. At the same time, net profit took a plunge: from 79.4 billion yuan a year earlier, to just 20.42 billion Chinese yuan (2.9 billion euros) now.
Last year, Chinese consumers bought less eagerly online, China’s National Bureau of Statistics explained: the bureau reported a downshift in online sales of physical goods at the end of last year. E-commerce accounted for about a quarter of all retail sales last year, but sporadic Covid outbreaks and inflation weighed on demand.
Indeed, sales of physical goods through Alibaba’s major online marketplaces Taobao and Tmall grew by just a single digit last year. The group also had to compete with strong rivals and a Chinese government tightening its grip on the country’s technology giants. “Winter is not over yet; spring will still come but may take longer to arrive”, said Alibaba, quoting a JP Morgan analyst report.
Apps for group purchasing
The e-commerce group sees signs of the forthcoming spring in the rising number of users: at the end of December, Alibaba had 1.28 billion active customers, 43 million more than a year earlier. Outside China, the group has now 301 million users. The technology giant says it is on track to have one billion Chinese users by 31 March. After hitting that target, the group will focus more on retention and conversion rather than on acquiring more customers.
In the meantime, Alibaba is betting heavily on new apps, specifically Taobao Deals and Taocaicai. These are, in fact, replicas of competing apps that have become very popular during the Covid crisis, such as Pinduoduo and Meituan. The first is a sort of Chinese Groupon, on which consumers can buy products at high discounts provided enough people sign up for the deal. Meituan and Taocaicai are also a type of group purchasing app, but mainly for food and groceries in local areas.
With these apps, Alibaba targets smaller cities and more rural areas, regions that have been more difficult to reach thus far. However, in particular, Taobao Deals is attracting many new users. “Their operating losses are set to shrink in coming months, showing Alibaba’s investment initiatives are bearing fruit”, CEO Daniel Zhang says. Analysts share the optimism and continue to see potential in the Chinese company.
Want to know more about the unique ways China innovates regarding e-commerce, social commerce and group buying? Soon you can read all about it in The Future of Shopping: Re-set Re-made Re-tail, the new book by Jorg Snoeck and Pauline Neerman, which will be published at the end of April.