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Alibaba logs lackluster earnings and cuts full-year forecast

China slowdown hurt both revenue and net income

Alibaba's headquarters in Hangzhou, China. Slower economic growth at home is pushing down the earnings of the e-commerce company.   © Reuters

HONG KONG -- Chinese e-commerce leader Alibaba Group Holding missed analysts' expectations for both revenue and net income in its latest quarterly earnings, as the country's economic slowdown cuts into the company's growth.

The company also revised its full-year revenue estimate, saying it expects a 4% to 6% lower result than initially projected.

The results, released on Friday morning U.S. time, show that the New York-listed company registered revenue of 85.15 billion yuan ($12.4 billion) over the three months ended in September. Though that represents 54% growth on the year, the figure falls well below the 86.51 billion yuan average of 27 analyst estimates compiled by Reuters.

Alibaba's net income reached 18.24 billion yuan. Yet the 5% increase still failed to satisfy analysts, who were looking for net income of 19.3 billion yuan, according to Reuters. These figures drive home the urgency of Alibaba's recent moves to find revenues of growth other than e-commerce.

The disappointing earnings come as investors and analysts raise concerns over whether China's sluggish growth will hinder Alibaba's online retail sales, which contribute to about 85% of revenue. The sluggishness also may threaten Alibaba's ability to withstand pressures from a sell-off of Chinese technology stocks this year.

Alibaba shares already have plummeted 28% from a June peak, as the global market turmoil and U.S.-China trade tensions sap investor confidence. The company's stock traded at $148.10, down 1.5% from the previous day's close, in early morning trading on Friday after the quarterly report was released.

The results also represent Alibaba's first set of performance data since founder Jack Ma Yun said in September that he will step down as chairman within a year and hand the position to Daniel Zhang, who has been the company's CEO since 2015.

In a call with analysts following the earnings release, Joseph Tsai, Alibaba's co-founder and executive vice chairman, tried to shake off concerns.

"Consumers see uncertainties in the future and are cutting back on their purchases. However, on Alibaba's retail marketplaces, we see continuing robust growth," Tsai said, adding that higher wages and China's growing middle class will further boost online sales.

Revenue from Alibaba's core commerce business increased 56% on the year to 72.48 billion yuan during the July-September period. The company said it also has intensified efforts to acquire new users and improve the shopping experience with the help of artificial intelligence.

Meanwhile, the company seeks new sources of income outside retail, such as cloud computing.

Besides building data centers across China, Alibaba has expanded its outreach to 19 cities and regions around the world. Its cloud computing services generated 5.67 billion yuan in the July-September quarter, up 90% from a year ago, the company said.

Alibaba also has witnessed notable growth in revenue from digital media and entertainment as well as its information services -- though the share of those services remains small.

Whether Alibaba can deliver on its forecast of 60% revenue growth for fiscal 2019 has become "one of the questions most-asked" among investors, Nomura said in a note last month to investors.

"Investors' concerns stemmed from softening China retail sales in recent months and a slowdown in Ali's China retail sales in recent quarters," the analysts said. Though Nomura rated Alibaba as a "buy," it has lowered the target stock price to $202 from $224.

Similarly, in October, analysts at Daiwa also rated Alibaba as a "buy" but adjusted the target share price down to $200, instead of $230.

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