Alibaba’s Revenues are Increasing, But Cloud Growth is Slowing

Alibaba revealed earnings for the first time since China levied a record penalties on the Internet behemoth — and the results were not as bad as some had expected.

Alibaba (BABA) reported a $1.2 billion loss in the first quarter, owing primarily to a $2.8 billion fine levied by Beijing earlier this year. Excluding that, net income increased by 18% to $4 billion.

Revenue increased by a solid 64% year on year to $28.6 billion. This exceeded economists’ expectations and is just another indicator of the Chinese economy’s recovery following last year’s Covid-19-induced collapse. Alibaba also stated that revenue for its next fiscal year is likely to increase by around 30% over fiscal 2021.

Alibaba Walltrace

Nonetheless, Alibaba shares, which are down more than 10% this year and 35% off their 52-week high, plummeted around 6% on Thursday. Revenue in its cloud business increased at a slower rate than in previous quarters.

Alibaba, co-founded by legendary entrepreneur Jack Ma, is one of China’s most recognized and successful private companies. However, the company’s stock has suffered since late last year, when Beijing began tightening the screws on the country’s tech giants.

Chinese President Xi Jinping has stated that regulating the internet sector is one of the country’s top goals for 2021, with the goal of “maintaining societal stability.”

Alibaba has been a particularly prominent target. The fine was imposed after antitrust officials determined that the online retail giant had acted monopolistically, and it was equal to 4% of Alibaba’s revenues in China in 2019.

When the fine was imposed, Alibaba stated that it accepted the punishment with “sincerity and will assure our compliance with decisions.”

Alibaba cloud momentum slows

However, it appears that the harsher regulatory environment had no significant influence on Alibaba’s core activities.

The firm reported on Thursday that it had 925 million mobile active users at the end of the quarter, a 23 million increase from the end of December.

Alibaba Walltrace

“Our overall business delivered strong growth on a healthy foundation,” said Alibaba chairman and CEO Daniel Zhang in a statement.

“We remain very excited about the growth of China’s consumption economy, which is benefiting from the acceleration of digitalization in all aspects of life and work,” he added.

Cloud revenue increased 37 percent year on year, an outstanding rate but a decline from previous quarters.

According to Alibaba’s earnings announcement, this was due to a sales reduction from a key customer with a large presence outside of China who opted to discontinue using its services. Alibaba did not reveal the identity of the customer.

The worldwide cloud industry is fiercely competitive. Alibaba is not only competing with Tencent in China (TCEHY). It is also competing for cloud contracts with Amazon (AMZN), Microsoft (MSFT), and Alphabet (GOOGL), the parent company of Google.


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