Alibaba shares tank despite Q4 profit

Today’s headlines

What’s happening: Shares of Alibaba Group Holding Limited fell on Thursday, after the company released results for its fourth quarter.

What happened: The Chinese ecommerce giant swung to a profit in the fourth quarter, driven by one-off gains.

Alibaba also approved a full spin-off of one of its major businesses.

How were the results: Alibaba reported downbeat revenues for the three months ended March 31.

• Revenues grew by 2% to 208.20 billion yuan in the latest quarter, missing the consensus estimates of 210.3 billion yuan.
• Net income attributable to ordinary shareholders came in at 23.52 billion yuan, versus a year-ago loss of 16.24 billion yuan and topped market expectations of 15.1 billion yuan.

Why it matters: The maturing of China’s ecommerce sector has made it increasingly difficult for Alibaba to gain new customers. Stiffening competition from new rivals, including PDD Holdings and Douyin, is also exerting pressure on Alibaba’s growth.

Although China witnessed a rebound in consumer spending after the relaxation of its strict covid-19 restrictions late last year, overall growth remained subdued. During the latest Golden Week holiday, spending came in below booking volumes, which is a major indicator of the broader market sentiment.

Alibaba has also been withdrawing its global growth ambitions and sold the last of its shares in Indian payments giant Paytm.

For the full year, Alibaba’s revenues rose 2% to 868.69 billion yuan, representing the slowest growth since the company went public in 2014. Revenues from its cloud division contracted 2% to 18.6 billion yuan during the quarter, with rising competition from Tencent Holdings.

Earlier in the year, Alibaba had announced plans to restructure the company into six divisions, following the regulatory crackdown on the tech sector. The company has now approved a full spinoff of Cloud Intelligence Group by distributing stock to shareholders and is looking to complete the public listing of the division in the next 12 months.

The company is also looking to complete the IPO of its Freshippo grocery unit in the year, while exploring an IPO for its logistics division, Cainiao, in the next 12 to 18 months.

How shares responded: Alibaba’s shares declined 5.4% to close at $85.77 on Thursday, following the release of quarterly results. The stock has lost around 8% over the past month.

What to watch: Investors will watch developments in the company’s restructuring process, which will impact its overall growth ahead. Markets will also monitor Alibaba’s generative AI model, Tongyi Qianwen, which the company announced last month.

The markets today

European stocks will be in focus today after closing higher on Thursday

Context: Equity markets in Europe settled higher on Thursday, driven by hopes of a resolution in the US debt ceiling issue.

Details: The global markets got some assurance from comments by House Speaker Kevin McCarthy and President Joe Biden regarding the debt ceiling issue. McCarthy said the US will not default on its debt.

The major European stock benchmarks have remained rangebound this month with traders monitoring risks of further policy tightening by the European Central Bank. The ECB’s Vice President Luis de Guindos said the central will have to keep hiking rates to bring inflation back to its 2% target.

Data released on Wednesday showed Eurozone’s inflation accelerating to 7% in April, from 6.9% in the previous month.

The STOXX Europe 600 index rose 0.39% to close at 465.79 on Thursday, driven by gains in automobile and tech stocks. Germany’s DAX climbed 1.3% to its highest since January 2022, while France’s CAC 40 added 0.6% to more than two-week high.

London’s FTSE 100 gained 0.25% to settle at 7,742.30.

What are expectations: Traders await the release of some major economic reports from European countries today. Data on consumer confidence and construction output from the Eurozone will be released on Monday.

Other Markets: US trading indices closed higher on Thursday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.34%, 0.94% and 1.81%, respectively.

The news shaping the markets

Russia launched missile attacks on Kyiv for the ninth time this month, sending the safe-haven US dollar index slightly higher this morning.

UK’s GfK Consumer Confidence indicator rose to -27 in May, from -30 in the previous month. Although marked the fourth consecutive month of improvement, the figure remaining in negative territory exerted pressure on the GBP/USD forex pair.

Japan’s annual inflation rate accelerated to 3.5% in April, versus March’s six-month low of 3.2%. Despite this, the JPY/USD pair rose in forex trading this morning.

New Zealand reported a trade surplus of NZ$0.427 billion in April, versus a year-ago surplus of NZ$0.469 billion, lending support to the NZD/USD forex pair.

Mexico’s central bank held its benchmark policy rate at 11.25% at its May meeting, sending the MXN/USD pair lower in forex trading this morning.

What else to watch today

Germany’s producer price inflation, Italy’s construction output, India’s value of deposits, foreign exchange reserves and value of loans, Brazil’s IBC-Br index of economic activity, Mexico’s retail sales, Canada’s retail sales, US Baker Hughes crude oil rigs, Indonesia’s total car sales, as well as Spain’s consumer confidence indicator.