Alibaba shares jump after earnings beat. Chinese lockdowns are still heavy.

Alibaba (stock symbol: BABA) reported a profit of $2.60 per American Depositary Receipt — referring to the company’s US-listed shares — in the December quarter, well above the $2.43 share forecast among analysts surveyed by FactSet.

Revenue came in at $35.9 billion, slightly above estimates, which represented relatively weak sales growth of 2% year-over-year and a slowdown from the 3% sales growth in the prior quarter.

Shares in Alibaba rose 2.5% in early trade; the

Standard & Poor’s 500

The index was 0.5% higher.

“We delivered a strong quarter despite weak demand, supply chain and logistical disruptions due to the impact of changes in Covid-19 procedures,” said Daniel Zhang, Chairman and CEO of Alibaba. Looking ahead, we expect a continued recovery in consumer confidence and economic activity. We are focused on driving growth for our clients amidst the competitive landscape, and creating sustainable, long-term value for our shareholders.

China’s economy and the finances of the country’s tech giants were hurt last year by restrictive government policies to combat the spread of the Covid-19 virus, including widespread lockdowns that slowed down. Alibaba saw its first-ever sales growth stall in the middle of 2022, but returned to growth, albeit barely, at the end of the year.

But there are still indications in Alibaba’s results that the Chinese consumer has not yet returned to full strength.

Online physical goods were sold on two of Alibaba’s biggest platforms — Taobao and Tmall — in the mid-single digits annually, which the group said was due to weak consumer demand. Alibaba said a surge in Covid-19 cases, which has fueled supply chain and logistical disruptions, has also affected competition.

“Alibaba is starting to turn around as consumer confidence slowly returns after China’s crackdown on Covid, but it will take some time before it’s running on all cylinders again,” said Susannah Streeter, analyst at broker Hargreaves Lansdown.
.

“Chinese consumers also had to deal with rising infections as lockdowns were lifted. Demand was still pent up in January and February as Covid spread and New Year celebrations disrupted sales.

But there are brighter spots to focus on, including Alibaba’s cloud computing business — a division that includes artificial intelligence applications that the company and analysts see as key to Alibaba’s future.

Sales in Alibaba’s cloud segment, measured at a rate that strips revenue from services provided to other parts of the group, grew quarter-on-quarter and jumped more than 26% year-over-year to nearly $3.9 billion.

All in all, Alibaba’s results will reassure investors that the company — which lost nearly half of its market value in 2021 amid deep regulatory pressure, with the stock now down 75% from its all-time high in late 2020 — remains on the right track. Although analysts see a slight decline in earnings and sales in the current quarter, the consensus is that by the end of 2023, earnings per share will rise by double digits.

Alibaba gets an average Buy rating among analysts, with the average price target for the stock pointing to more than 50% upside from current levels.

Write to Jack Denton at [email protected]