Beijing and Covid put pressure on Alibaba’s profitability

The headquarters of e-commerce giant Alibaba in Hangzhou on May 26, 2022 (STR / AFP)

Black Thursday: Chinese e-commerce giant Alibaba reported a nearly 60% drop in net profit in 2021 and huge quarterly losses, on the back of an economic slowdown and tougher regulations targeting technology.

Since the end of 2020, authorities have been stubborn against certain practices of the digital giants, which were previously largely accepted, in relation to personal data collection and competition.

And so Beijing doubled down on powerful internet companies, preventing them from raising money internationally or fining them for abusing a dominant position.

These moves have cost the industry billions of dollars in market capitalization.

Long regarded in China as a model of success, Alibaba was the first to suffer the punishment of public authorities.

The country’s economy has also been undermined by anti-Covid restrictions, as consumption has fallen to its lowest level in two years and the unemployment rate is near an all-time high, which in turn is punishing e-commerce companies.

In this context, Alibaba recorded, Thursday, a significant decline in its profits last year.

It amounted to 61.9 billion yuan (8.6 billion euros), compared to 150.3 billion yuan a year ago – down 59%.

In the last quarter of the faltering financial year, the group also showed losses of about 2.3 billion euros, which it attributes to the “re-emergence of the epidemic in China, particularly in Shanghai”.

under pressure

China has been facing a resurgence of the epidemic for several months, affecting many parts of the country to varying degrees.

Under the Covid zero health strategy, many cities, including the economic capital Shanghai, have been closed, penalizing production and consumption.

Poor household spending is weighing on e-commerce companies, which have so far been used to exponential growth while undervaluing online purchases.

Alibaba said it was unable to set goals for 2022 “in light of the risks and uncertainties related to Covid-19”.

The group, which has long been a leader in online commerce, has faced increasingly stiff competition in recent years, particularly from Pinduoduo and JD.com.

Passers-by outside the headquarters of e-commerce giant Alibaba in Hangzhou on May 26, 2022.
Pedestrians outside the headquarters of e-commerce giant Alibaba in Hangzhou on May 26, 2022 (STR/AFP)

Alibaba is also in the finance space, and it’s also under pressure in this sector.

At the end of 2020, organizers derailed the massive mega-subscription of its subsidiary Ant Group.

The company, which has seen itself raising $34 billion in Hong Kong and Shanghai, has been prevented from doing so in extreme cases by the authorities, due to its concerns about potential financial risks.

In the process, Jack Ma disappeared from the radar for two and a half months, a silence that then raised many questions, especially of a political nature.

Today, the tension is still strong.

Gloom 2.0

When earlier this month state broadcaster CCTV announced the arrest of “Mr. Ma” in Hangzhou on behalf of national security, Alibaba’s stock collapsed.

CCTV had to clarify that the person in question was not Jack Ma but his namesake, to reassure the markets.

According to Bloomberg, this incident was enough to cause Alibaba to lose $26 billion in market capitalization for a brief period.

A passerby in front of the headquarters of e-commerce giant Alibaba in Hangzhou on May 26, 2022
A passerby in front of the headquarters of e-commerce giant Alibaba in Hangzhou, May 26, 2022 (STR/AFP)

Alibaba’s poor performance is far from being an isolated case in China in the tech world.

Earlier Thursday, search engine Baidu announced a loss of about 120 million euros in the first quarter.

Last week, Tencent unveiled a quarterly turnover in near stagnation over the course of one year.

This is the first time since 2004 that the Chinese internet and video game giant has recorded slow growth.

According to Chinese economic media Caixin, Tencent is preparing to lay off 10% of its workforce.

After threatening a decline in activity in China, a driver of the economy, the force received several tech chiefs last week, raising hopes of reforming a sector that has been under pressure for months.

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