Alibaba’s strong earnings show Chinese consumers are still spending money

E-commerce giant Alibaba reported higher-than-expected earnings and sales for the latest quarter on Thursday.

Stock Alibaba (WOMAN) rose almost 15% in late morning trading after the company said revenue was up 9% year-over-year, beating analysts’ forecasts. Alibaba said the growth was driven by strong demand for online and mobile shopping, as well as a 12 percent jump in sales from its large Alibaba Cloud division.

Alibaba said it now has over 1 billion active customers in China, the first time the company has crossed that milestone. Alibaba has over 1.3 billion customers worldwide.

Alibaba Charman and CEO Daniel Zhang said in a press release that Alibaba was able to perform well “despite macroeconomic challenges that have impacted supply chains and consumer sentiment.”

The company hopes that supply chain disruptions may soon end. Alibaba CFO Toby Xu said during a conference call with analysts on Thursday that “we are certainly seeing signs of improvement in May,” although it still “takes time” to deliver backlogs.

Xu added that “many merchants may need to invest to increase their revenues,” especially as retailers gear up for Alibaba’s mid-year shopping festival on June 18.

Changes in the shopping habits of Chinese consumers

Concerns about a surge in Covid in China’s major cities remain a major concern. This has led to a change in how (and what) Chinese consumers buy, as has happened in the United States and other parts of the world.

“While our user traffic and engagement has remained robust, consumption patterns by category across our platforms have changed,” Zhang said on a conference call.

He noted that sales in the fashion and electronics categories have declined, but “demand for essentials” such as food and personal care products has “greatly increased as more consumers stockpile at home.” Zhang said other categories such as health care, sportswear and outdoor products were also growing rapidly.

Leading American retailers such as walmart (TDC) as well as Target (TGT) report similar trends.
But Alibaba faces other major challenges. In the past few years, China’s regulators have been taking a closer look at their homegrown tech giants. And many large Chinese companies that trade in the US may be forced to delist their shares from the New York Stock Exchange and the Nasdaq.
Top dealer says Chinese markets 'close to bottom'
The Didi ride-sharing app is under development. Luckin Coffee, competitor Starbucks (SBUX)has already been delisted, although the company has made an impressive comeback to China following its accounting problems.
Tensions between China and the US also remain high. President Biden continues to speak harshly about a possible military intervention in China if he attacks Taiwan.
However, Biden and US Treasury Secretary Janet Yellen have hinted at lifting some of the most onerous Trump-era tariffs on Chinese goods.
Other major Chinese companies have also reported more optimistic results recently. Alibaba competitor (JD) recently said sales for the latest quarter beat forecasts. And the Chinese search giant Baidu (BIDU) on Thursday reported better-than-expected results thanks to the growth of its cloud and artificial intelligence divisions.
Baidu shares rose 10% on Thursday. But its shares are still down more than 10% for the year. Alibaba, JD and other leading Chinese technology companies such as online shopping. Pingduoduo (SDA) and electric vehicle companies Nio (NIO), Xpeng as well as Lee Auto are still declining sharply in 2022 despite a recent recovery.

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