China’s economy may be slowing as consumers cut back, but Alibaba, the country’s leading ecommerce company, has seen its share price bounce up 8 per cent so far this year.
Alibaba’s revenue is more than 90 per cent domestic, and the company had a torrid 2018, saying in November that revenues in the year to March will be Rmb375bn ($55.4bn) to Rmb383bn, at most a 53 per cent rise. It had previously expected a 60 per cent increase.
But Alibaba shareholders appear to have factored in the broader economy. “Growth expectations are re-setting,” said Karen Chan, an internet analyst at Jefferies.
Alibaba has taken steps to ease the burdens on the struggling merchants that use its services, saying it will not charge for targeted advertising. Analysts said the company was likely to continue to prioritise keeping merchants on its websites over fees, as it fights for market share with rivals such as JD.com and Pinduoduo.
A bigger worry for investors than the slowdown is how China’s regulators will behave this year, added Ms Chan. “Investors are uncertain about how policy would be playing a role in the sector going forward.”
One US-based investor predicted that the global backlash against tech companies will continue into 2019.
“The tech giants are becoming more and more powerful, so we’re seeing governments everywhere trying to rein in their influence,” the investor said, adding that Xi Jinping, the Chinese president, will be emboldened by his new mandate after extending his term. “Now he is entrenched he can make more long-term changes. Why now? Because Xi is really trying to make his presence felt.”
For many, the major thrust is expected to be on financial services. A raft of rules have mostly hit the smaller peer-to-peer players, a development that ultimately only helps to entrench major players such as Alibaba’s Ant Financial.
But Beijing’s worries about systemic risk, particularly in a year of slowing growth and problems with debt, may force action against the larger players. “You can see clearly the direction of regulators is to control the [systemic] risk,” said David Dai, an analyst at Bernstein Research. “That’s why Ant has repositioned itself as a tech company.”
During its fundraising in April — an exercise that valued Ant at $150bn — the company was at pains to point out that revenues from providing tech services were growing faster than revenues from providing loans and other financial services. It is now, according to one person familiar with the group, “moving towards having a very light balance sheet”.
That was “probably wise”, said Mr Dai, and made for a better fit with Alibaba’s avowedly asset-lite model of providing a platform over which others — merchants, banks or fund managers — could sell their wares.
According to one China tech investor: “Ant’s view is that regulation is going to be the hardest challenge globally.” As such, he said, the plan was to target major markets like India rather than spreading the fight across a number of fragmented markets.
Meanwhile, Alibaba, in common with its peers, is diversifying into selling services to industry. It is the leader in China’s cloud computing market. This year is likely to see a further push into digitising shops, helping merchants to track customers and their shopping habits in a bid to increase sales.
It is similarly working with restaurants — a highly fragmented industry — to improve their efficiency. Fatter margins should in turn benefit Ele.me, Alibaba’s food delivery service.
Another worry is greater competition, not only from the next generation of Chinese internet platforms such as Bytedance, but also from the deep-pocketed SoftBank.
The Japanese tech investor, which has backed Bytedance, has often partnered with Alibaba, in which it has a 29 per cent stake. But its $100bn Vision Fund is setting up shop in China, suggesting it could also compete for assets and — with its outsize cheque book — drive up valuations.
But Alibaba has been through similar turbulence before. Referring to the slowdown at its last quarterly results, chief executive Daniel Zhang said: “This is the third time in Alibaba’s 19 years that we’ve encountered a setback in the global economy . . . We see an opportunity to greatly expand our total addressable market.”
Job moves as Alibaba repositions
Alibaba went through a chain of job moves at the end of last year, triggered by the arrest of Yang Weidong, the former president of video-streaming service Youku in December on suspicion of “receiving improper payments”.
Alibaba moved to plug the gap with Fan Luyuan, chairman and chief executive of Alibaba Pictures, the company’s film division. At the same time, it moved to take a 50.9 per cent controlling stake in Alibaba Pictures.
Shortly afterwards Lucy Peng, one of Alibaba’s elite inner circle, had her dual role cut back at Lazada, the company’s south-east Asian ecommerce operation, stepping down as chief executive while remaining executive chairwoman.
This year, Daniel Zhang will do the reverse, replacing Jack Ma as chairman of Alibaba in September while also remaining chief executive.
Ant Financial, the $150bn payments affiliate where Ms Peng previously served as executive chairman, now has Eric Jing juggling both roles.
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