Alibaba Cuts Sales Forecast on Economic Uncertainty, Trade Fears

November 2, 2018 Updated: November 2, 2018

China’s Alibaba Group Holding Ltd lowered its full-year sales forecast on Nov. 2 due to concerns about the economic impact of a U.S.-China trade spat, which the company expects will dent revenue ahead of its top sale season.

Asia’s most valuable public company said it will cut its full-year revenue forecast to between 375 billion and 383 billion yuan ($54.4-$55.6 billion), a 4-6 percent drop, while sales growth in its core commerce business for the September quarter slowed to its lowest rate since 2016.

In a call with analysts on Friday, executives said big ticket purchases could be affected by economic uncertainty and that they will delay efforts to make more money on some aspects of its marketplaces in an effort to retain businesses on its platform.

“In light of current fluid macro-economic conditions, we have recently decided not to monetize, in the near term, incremental inventory generated from growing users and engagement on our China retail marketplaces,” said Alibaba in a statement.

The company’s U.S.-listed stock edged up 0.4 percent to $151.81 by 1346 GMT, but is down more than 12 percent this year amid a wider sell-off of China tech stocks that has also affected Baidu Inc and Tencent Holdings Ltd.

The decision to take in less income from its platforms comes ahead of Singles’ Day, Alibaba’s annual mega-sale event, which peaks on Nov. 11 and last year netted the company over $25 billion in sales.

Alibaba competes fiercely for customers and merchants during the event, and has historically recorded much higher marketing costs around the event, which also eats into sales from the first and third quarter.

Ahead of the event, sales growth on the company’s China retail marketplaces in the third quarter slowed to 37 percent, its weakest growth rate in eleven quarters.

The company has been investing heavily in offline retail and rural e-commerce in a bid to win new customers as China’s urban market shows signs of saturation.

Roughly 75 percent of Alibaba’s new users last quarter were from undeveloped areas, said Chief Financial Officer Maggie Wu.

Analysts said the impact of trade tensions and tighter regulation in China, including new rules on advertising and online finance, will continue to weigh on the company’s share price for some time.

At a recent event, Chairman Jack Ma predicted the trade war could last 20 years, and said the company would adapt plans, including scrapping an initiative to create a million jobs in the United States by bringing U.S. producers onto the platform.

The company’s stock also weakened recently on news that Ma, 54, will retire next year on Sept. 10, passing the baton to current CEO Daniel Zhang.

Ma, who co-founded Alibaba in 1999, has become one of China’s richest people, with a net worth of $36.6 billion, according to Forbes.

Political Demands

Ma’s early retirement is unexpected for an entrepreneur of his stature in China.

Ma’s resignation comes at a time when Beijing is trying to rein in private firms. In June, the Chinese Communist Party (CCP) mandated that all of the country’s publicly listed companies must set up Party organizations for its employees.

These organizations are often set up in the workplace to monitor employees and ensure workplace decisions toe the Party line.

As many of China’s biggest firms have expanded their portfolios through risky investments overseas, the CCP has been cracking down on such capital outflows. In December 2017, the Party mandated that all businesses report their foreign investments to the central authorities.

In the meantime, many of the wealthy businessmen behind China’s biggest conglomerates have fallen under the Chinese regime’s axe in recent months.

Ye Jianming, former chairman of CEFC China Energy, China’s largest privately held energy company, was arrested in May and also placed under investigation for economic crimes. His company’s assets were liquidated in order to repay its massive debt.

China observers like Chen Pokong believe that Ma may have seen his fate coming and chosen to resign early to avoid it.

China scholar Chen Xiaonong told New York-based NTD that many entrepreneurs in China were able to become successful through political connections with powerful Party officials. But if the regime starts investigating those corrupt officials, those businessmen connected to them will also be ensnared.

($1 = 6.8925 Chinese yuan renminbi)

By Cate Cadell. Epoch Times staff Annie Wu contributed to this report.