Alibaba stock surges as earnings beat expectations despite impact of COVID-19

US-listed shares of Alibaba Group Holding Ltd. rose in premarket trading on Thursday after the Chinese e-commerce giant beat sales and earnings expectations for the most recent quarter.

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Feeling a sting from the recent COVID-19 outbreak in China and a general slowdown in China’s e-commerce growth, the company broke from its pattern of recent revenue shortfall by beating the FactSet consensus for its fourth quarter. Alibaba generated revenue of RMB204.1 billion (US$32.2 billion) in March, up 9% from RMB187.4 billion a year earlier and ahead of the RMB199.5 billion reported by FactSet-tracked analysts had forecast.

According to an analysis of FactSet data, Alibaba had recorded three consecutive sales shortfalls ahead of Thursday’s beat.

Shares rose 4% in premarket trading on Thursday.

Speaking on Alibaba’s conference call, Chief Executive Daniel Zhang said the recent COVID-19 surge in China has impacted the company’s business “to varying degrees.” New COVID cases have emerged in areas where Alibaba generates significant Merchandise Volume and which are important from a logistical perspective.

He said “electronics consumption” in the company’s customer base has declined, while demand for essential items like groceries has risen sharply, according to a transcript of FactSet. Consumers are hoarding groceries, he added.

The company’s China trading business posted revenue of RMB140.3 billion in the most recent quarter, up 8% year-on-year. Alibaba announced that as of March 31, it had a total of 903 million annual active consumers for its commerce segment in China.

Alibaba said in a press release that it has seen success with its strategy of “attracting and retaining users with diverse demographics and shopping habits into our commerce ecosystem.”

The company posted a net loss of RMB16.2 billion, or RMB6.07 per American Depositary Share, compared to a loss of RMB5.5 billion, or RMB1.99 per ADS, in the same period last year. Alibaba noted that the loss reflected the decline in market prices of its holdings in public companies, which are not included in the company’s adjusted metrics.

After adjustments, Alibaba earned RMB7.95 per ADS, down from RMB10.32 a year earlier but above the FactSet consensus, which called for RMB7.10 per ADS.

While the company traditionally offers financial guidance for the start of a new fiscal year, this time Alibaba declined, citing uncertainty created by the pandemic.

“Since mid-March 2022, our domestic operations have been significantly affected by the resurgence of COVID-19 in China, particularly in Shanghai,” Alibaba said in its press release. “Given the risks and uncertainties arising from COVID-19 that are beyond our control and are difficult to predict, we believe it is prudent not to make financial projections at this time, as we typically do at the beginning of the fiscal year. “

Alibaba added that the company expects to “continue to generate strong operating cash flow to maintain strategic agility as we adapt our operations to changing economic and competitive circumstances.”

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