Subdued Alibaba strikes fitting new tone

3 minute read

A view of the Alibaba Group headquarters in Hangzhou, Zhejiang province, China October 26, 2020. Picture taken October 26, 2020. REUTERS/Aly Song - RC2QQJ90JVKP

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HONG KONG, May 27 (Reuters Breakingviews) - In uncertain times, mundane things stand out. For China's Alibaba (9988.HK), the focus of its new chief financial officer on cost cuts and better-than-expected sales growth powered a 15% stock rally. The e-commerce group thwacked by regulatory issues and Covid woes is taking control where it can. But exercising financial discipline in a slowing economy invites trouble too.

On the face of it, record low growth is nothing to celebrate. Still, Alibaba's $30 billion of revenue in the three months to March, up 9% from a year earlier, beat analyst forecasts and impressed against a slew of bleak macroeconomic indicators. Smaller losses in online videos and food delivery, as well as a rare dividend from financial technology affiliate Ant, were also welcome positives from an otherwise gloomy set of results announced on Thursday.

The tone set by Toby Xu, who took over as finance chief in April, resonates with investors who’ve endured a 55% drop in the company’s share price in one year. The low-key former accountant stressed a focus on cost optimisation and control. While he did not provide specific targets, Xu said during an analyst call that it would involve things like scaling down some units and cutting back on marketing. It's a notable shift from his predecessor Maggie Wu, who oversaw Alibaba's M&A sprees and costly subsidy battles in food delivery and online groceries. Wu remains a director on the board.

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There are risks, though. China's technology titans have been under immense scrutiny from regulators and the public on everything from disorderly expansion of capital to how they treat employees. Issues such as grueling work hours are particularly sensitive. Equally, trimming too much fat at a vulnerable moment for the Chinese economy risks the ire of officials and others. Just last week, Tencent (0700.HK) boss Pony Ma reposted an article on his social media account, highlighting the sentence, "The way some netizens care about the economy is: Firms can go bankrupt, but they cannot fire staff; firms can go bankrupt, but they cannot have overtime work". It created enough of a stir to suggest Xu will be walking a tightrope.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

- Alibaba on May 26 reported revenue of 204.1 billion yuan ($30.3 billion) in the three months to end-March, an increase of 9% from a year earlier.

- Adjusted earnings, after excluding share-based compensation and fair value changes in the company's equity investments, fell 24% to 19.8 billion yuan ($2.94 billion).

- The company said it believed it was "not prudent" to give financial guidance for the year ahead given Covid-19-related risks outside of its control and which were "difficult for us to predict."

- Alibaba's New York shares closed up 15% to $94.48 on May 26 following the results.

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Editing by Una Galani and Thomas Shum

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