Alibaba, Hit by Covid in China, Posts Slowest Revenue Growth Since IPO

Early in the pandemic, China’s stringent approach to Covid-19 control allowed it to quickly restart the economy. In recent months, however, its measures to combat Omicron, including a near-two-month citywide lockdown in Shanghai, have emerged as the largest threat to economic growth.

Unlike in recent years, Alibaba didn’t give an annual forecast, citing the unpredictability around Covid disruptions. “Considering the risks and uncertainties arising from Covid-19, which we are not able to control and are difficult for us to predict, we believe it is prudent at this time not to give financial guidance.”

“The most important driver for Alibaba’s outlook is government Covid policy,” Barclays analyst Jiong Shao said on Thursday. “If the lockdown continues beyond the second quarter, I think not just for Alibaba, the entire Chinese economy is in serious trouble.”

In the quarter that ended in March, the Hangzhou-based company’s revenue rose 9% from the same period a year earlier to 204.1 billion yuan, or $32.2 billion, based on an exchange rate of 6.34 yuan to a dollar that Alibaba used. It posted a net loss of 16.2 billion yuan for the fiscal fourth quarter, compared with a 5.5 billion yuan net loss a year earlier. Alibaba cited price drops in its equity investments in publicly traded companies.

For the fiscal year that ended in March, Alibaba posted 853.1 billion yuan in revenue, up 19% from a year earlier.

Across China, the impact of Covid-19 restrictions—including lockdowns at industrial hubs such as Shanghai—has rippled through the economy, disrupting supply chains and logistics as well as dampening consumption. China’s April retail sales, a proxy for consumption, were down 11% from a year earlier, the second-straight monthly decline and the biggest contraction since March 2020.

Alibaba said it saw a clear shift in spending during March and April, with demand for essential items going up while nonessential purchases declined, as consumers were more sensitive to prices. For consumption to recover, Chief Executive

Daniel Zhang

said in a call with analysts after the earnings release, there needs to be a robust supply chain in place, and consumers need to have “strong expectations for the future,” and for better income prospects in particular.

As China’s economic outlook rapidly deteriorates, Beijing has signaled a pause in its regulatory campaign aimed at tech giants. Last week, senior Chinese politicians stated support for a stronger digital economy at a meeting with some tech executives.

Mr. Zhang welcomed what he called a very clear message from Chinese leaders encouraging the “healthy development of the platform economy.”

Alibaba has also been severely hit by Chinese regulatory actions. In late 2020, Chinese authorities forced Alibaba’s financial-technology affiliate Ant Group Co. to halt its initial public offering. Last April, Alibaba was slapped with a record antitrust fine of $2.8 billion.

Jack Ma,

its billionaire founder, has largely retreated from the public eye.

Alibaba’s results mirrored those of others in China’s tech sector. Last week,

Tencent Holdings Ltd.

, a videogame and social-media behemoth, said its January-March quarterly revenue was essentially flat. Search-engine giant

Baidu Inc.

on Thursday reported a 1% increase in its first-quarter revenue from a year ago.

While Alibaba’s quarterly revenue was slower than in any quarter since its 2014 listing, it came in above expectations of analysts polled by FactSet.

In the call with analysts, Mr. Zhang highlighted Alibaba’s cloud business as a bright spot. Cloud revenue grew 12% year over year in the January-March quarter, slower than in the previous quarter due to the impact of Covid-19 restrictions, but for the full year the business was profitable for the first time.

Alibaba’s American depositary receipts, which have fallen around 60% over the past year, were up around 13% in early trading on the New York Stock Exchange Thursday after the results were released.

Amid the regulatory crackdown and the slowing economy, many Chinese tech companies, long a draw for China’s youth, began laying off droves of employees in late 2021.

People familiar with the matter had said earlier in the year that Alibaba was considering cutting around 20% of its employees in certain business groups this year. An Alibaba midlevel manager said that about 20% of his co-workers in his business unit have either been laid off or quit since the start of the year and that morale is low among those who stayed. Alibaba didn’t mention layoffs in its call with analysts and didn’t respond to a request for comment.

Some of Alibaba’s U.S. peers have also experienced slowing growth.

Amazon.com Inc.’s

January-March revenue rose by about 7%, the slowest pace in about two decades due to a slump in online shopping, higher costs from inflation and supply-chain woes. Google parent

Alphabet Inc.’s

sales rose 23%, the lowest rate for the company since late 2020, as global economic turmoil disrupted digital advertising spending.

Over the past few years, companies like ByteDance Ltd., Meituan and

Pinduoduo Inc.

have eaten into Alibaba’s market share in its core domestic e-commerce business. As a response, Alibaba invested heavily in Taobao Deals, a bargain platform, and Taocaicai, a marketplace that delivers daily necessities and groceries to local neighborhoods.

Ant recorded an estimated net profit of 22 billion yuan in the quarter ended Dec. 31, up slightly from the same period a year before, according to The Wall Street Journal’s calculations based on Alibaba’s earnings disclosures. Alibaba owns a third of Ant and reports the online-payment giant’s share of profits one quarter in arrears.

—Rebecca Feng contributed to this article.

Write to Shen Lu at [email protected] and Yoko Kubota at [email protected]