Quarterly earnings decline adds to Alibaba’s humiliation

Net income of Alibaba, the Chinese e-commerce giant and media owner, fell 50% to US$3.40 billion (RMB22.7 billion) in the three months between April and June, the first quarter of the current fiscal year. . Revenue was flat at US$30.7 billion (RMB 206 billion).

Still, using Alibaba’s preferred non-GAAP method of calculating profitability, net income for the quarter fell 30% from RMB45.1 billion to RMB30.2 billion, or US$4.52 billion.

While the numbers aren’t as dire as some analysts had predicted, they contributed to a turbulent and uncomfortable time for an iconic company that was once one of China’s most admired companies.

“During the past quarter, we actively adapted to changes in the macroeconomic environment and remained focused on our long-term strategy by further strengthening our ability to create value for customers,” said Daniel Zhang, Alibaba chairman and CEO, in a statement on Thursday .

Alibaba’s troubles are a combination of the effects of China’s slowing growth and a political pincer movement that has been crushing the country’s tech sector for nearly two years. The squeeze was aimed at reducing the influence of the tech giants in the everyday life of the Chinese and in particular downsizing Alibaba. Some commentators have called it a process of castration.

In recent months, company founder Jack Ma has announced that he is selling all of his stakes in Alibaba and Ant Group, the financial powerhouse he also founded. Ant has also announced that it will no longer benefit from access to Alibaba’s customer data, making it a far more tedious proposition.

Softbank, the Japanese tech investment firm that has been a core investor for more than a decade, announced this week that it had raised about $22 billion to the point that Softbank could lose its seat in Alibaba’s boardroom.

That’s a humiliation for Softbank and Alibaba, and an admission that Alibaba’s rehabilitation will be difficult. But the stock sale comes after the market caps of Alibaba, rival Tencent and China’s tech sector have fallen by as much as $1 trillion since the government crackdown began. (Tencent is expected to release its quarterly earnings on August 17.)

And Alibaba recently took preparatory steps to make Hong Kong the common primary listing for its shares. That’s a tacit admission that it could be forced by the New York Stock Exchange — earlier this week the company revealed it had failed US regulators on its auditor’s report — and switch to an exchange under Beijing’s scrutiny .

On the bright side, video-streaming platform Youku’s daily average paying subscriber base grew 15% year over year, though total subscriptions weren’t disclosed. The improvement was “primarily driven by quality content and the continued contribution of our 88VIP membership program,” the company said. “Youku continues to improve operational efficiencies through disciplined investments in content and production capacity, resulting in year-over-year losses narrowing for five consecutive quarters.”

Beyond Youku, Alibaba’s broader digital and media segment (which includes film production and distribution, an internet browser and film ticket service Taopiaopiao) saw revenue decline 10% to RMB7.23 billion (compared to RMB8.07 billion in the year-ago quarter) . ). The sector’s losses deepened, with adjusted earnings before interest, taxes, depreciation and amortization rising to RMB630 million, or US$93 million, from RMB419 million.

Hong Kong-based Alibaba shares rose 5% to HK$95 on Thursday ahead of the earnings release. In premarket trading in New York, ADR shares were up 3.4% to $100.12.