December 16, 2018

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Alibaba Feels the Pinch From China’s Slowing Growth

Alibaba Feels the Pinch From China’s Slowing Growth
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SHANGHAI — A slowing economy is taking a toll on China’s biggest e-commerce company.

The Alibaba Group on Friday reported $12.4 billion in revenue for the latest quarter, a 54 percent increase from a year earlier but less than analysts’ estimates. The company also said it was lowering its estimate of revenue growth for the full fiscal year, which ends in March, in light of current macroeconomic uncertainties.

Alibaba has proved resilient amid signs of slowing growth in China, the world’s second largest economy after the United States. But its new estimate suggests China’s slowdown has been felt in more parts of the economy, including among its growing middle class.

The online titan has been extending its consumer empire into the offline world, and its fast-expanding supermarket chain and food delivery services have contributed handsomely to recent revenue growth. Spending to develop those new ventures has squeezed the company’s bottom line, though. Alibaba’s profit for the three months that ended in September grew 13 percent from a year earlier.

Alibaba has long enjoyed an unmatched grip on how Chinese consumers shop on their phones and computers. But the company thinks its future depends on having a bigger presence in the wider, non-virtual world.

The company now operates nearly 80 of its lavish, full-service Hema supermarkets, up from 20 a year ago. Alibaba’s logistics arm, Cainiao, recently opened what it called “the largest robotic smart warehouse in China,” in which 700 boxy droids wheel about rearranging giant shelves laden with goods.

One area of expansion outside e-commerce has paid off definitively for Alibaba. Revenue from the company’s cloud computing division, which is the market leader in China, soared 90 percent in the latest quarter from a year earlier.

Over all, however, Alibaba faces bracing economic headwinds.

The quarter that ended in September was the first since the Trump administration began its trade war with China. Alibaba executives have sought to reassure investors by pointing out that even if tariffs make American goods more expensive, Chinese customers can still use Alibaba’s platforms to buy more products made at home, or from other countries.

But the bigger concern for the company, as China’s stock markets tumble and its currency slides, is that middle-class shoppers seem to be tightening their purse strings across the board. Alibaba’s shares have lost around 30 percent of their value since June, as jitters about the Chinese economy are compounded by fears of a frostier regulatory environment for private companies.

Shawn Yang, 27, works in finance in Shanghai. He said that straitened times in his industry had led him to rethink nonessential purchases like video games and gadgets.

Singles Day, the annual online shopping bonanza in China, is coming up on Nov. 11. Last year, Mr. Yang spent nearly $600 on workout clothes, shoes, a yoga mat and a coffee machine.

This year? He plans to spend less than half that amount — on jeans from Zara, two shirts for work and a bottle of moisturizer.



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