On Wednesday, Alibaba (9988. HK) said that its chief executive would directly oversee its domestic e-commerce arm, with the unit’s previous head turning her focus to managing non-core assets as the group combats slower earnings growth. Group CEO Eddie Wu will take over as chief executive of the domestic e-commerce arm of Taobao and Tmall Group effective immediately, the company said, boosting his direct control over the group’s core businesses.
Alibaba’s stock fell as much as 10% in Hong Kong trading after the firm reported a sharp fall in second-quarter net income and warned of slowing revenue growth for the entire year. Investors had hoped for better results as the Chinese e-commerce giant diversified into new business areas like cloud computing and entertainment to boost its top line.
However, weak consumer sentiment sparked by economic insecurity and the slow recovery of China’s retail sector after Covid-19 restrictions eased weighed on Alibaba’s profits. In addition, the Alibaba Singles Day shopping event in November generated only modest growth, and the broader global economy faced slowing demand.
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In response, the Alibaba board has decided to split the company into six independently-run entities with their capital markets, aiming to create more flexibility and make it easier for them to seize market opportunities. These include Cloud Intelligence Group, Taobao and Tmall, Local Services Group, Alibaba International Digital Commerce Group, Cainiao Smart Logistics Network Limited, and Digital Media and Entertainment Group. The company will also continue to invest in non-core businesses to support its core e-commerce platform.
According to the latest quarterly results, Alibaba’s e-commerce sales rose 12.1%, below its previous guidance of 17%. In the previous quarter, the company’s e-commerce sales growth had been dragged by a sharp drop in sales during China’s Covid-19 lockdown. As the situation has improved, the company expects a “solid” recovery for the mid-year 618 shopping festival in June.
Alibaba is not alone in seeing its earnings growth slow this year as the industry struggles with China’s economic woes and a slowdown in global consumption. Tech giants like Tencent (07700. HK) and e-commerce rivals like PDD Holdings (PDD.O) have increased their share of the country’s online retail market.
Nevertheless, Alibaba’s market dominance remains impressive, and its five-year earnings growth rate is still more than double the industry average. Its long-time backer, SoftBank, has recently begun to sell shares in the company, reflecting a more cautious stance towards the Chinese Internet industry. The company is also trying to boost shareholder confidence by launching an accelerated share buyback program and preparing a process for mainland investors to trade its shares in Hong Kong. The company has a B composite rating on IBD’s Stock Checkup tool, which analyzes fundamentals, valuation, and price momentum. The tool ranks stocks on a 100-point scale. A 100 rating indicates a buy. A 0 rating indicates a sale and a -1 rating means a short sale. IBD’s stock-picking team covers thousands of companies, analyzing earnings reports and data to find stocks with potential gains.