Alibaba’s Arabian Night

5th nov alibaba

Image source: SL Chen, Mike Focus - Shutterstock

What's going on?

On Friday, Alibaba – China’s $400 billion answer to Amazon – copycatted some other tech giants: it delivered a higher-than-expected quarterly profit but a lower-than-expected sales forecast.

What does this mean?

Alibaba grew its revenue by 54% more than the same time last year, which was below forecasts, but profit growth of 13% was higher than investors’ predictions. Cloud computing was a big deal – quarterly revenue from up there almost doubled compared to last year.

But forty thieves stole from Alibaba’s annual sales forecast: the company lowered its expectations for the year by 5%, blaming China’s uncertain economy (brought on by its US trade tussles) making it harder for the company to charge the fees it wants.

Why should I care?

For markets: With great potential comes great competition.

Alibaba’s got over 600 million customers and believes that’s just the beginning. The Chinese middle class is expected to grow to 850 million people by 2030 (from 300 million today) – so Alibaba’s hoping to pick up much more yuan in services ranging from ecommerce to food delivery. But a growing population attracts competition: from Meituan Dianping in food to the Chinese government’s banks (up against Alibaba’s aptly named Alipay). Investors might worry that any slowdown ahead on Alibaba’s front might benefit its rivals, perhaps leading them to sell off the company’s shares – they fell by 2%.

The bigger picture: Meet the Chinese tech company, same as the American tech company.

Amazon and Apple, for example, have gotten used to bumper revenues from Black Friday and Cyber Monday (discounted sales periods in the US that’ve gone global). In China, November’s sales festival is Singles’ Day – which, last year, pulled in $25 billion for Alibaba. Given its lower sales forecast, the day could make or break Alibaba’s year – so its stock price might move markedly on any news related to the US-China trade war/negotiations (take your pick 😉) since it might have an effect on customers’ willingness to splurge.

Originally posted as part of the Finimize daily email.

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