Alibaba Group warned it expects to see a drag on its top line for the quarter to March due to the ongoing coronavirus outbreak, which has created substantial logistical constraints and dampened consumer sentiment in certain discretionary categories like apparel.
“While demand for goods and services is there, the means of production in the economy has been tempered by delayed opening of offices, factories and stores after the Lunar New Year holiday,” said Maggie Wu, chief financial officer at Alibaba.
The Chinese government extended the holiday across the nation until Feb. 3, although many provinces and cities went further and banned most businesses from operating for another week until this past Monday. Even then, the private sector has been slow to resume work due to lack of workers stuck in quarantine, and companies that are up and running are mostly allowing employees to work from home, impacting efficiency.
Wu noted that it was too early to provide an estimate for the full financial impact, but said “what we’ve seen particularly in the past 12 to 13 days since the start of February, our overall revenue growth rate will be negatively impacted in the March quarter.”
“Some of our businesses that rely on physical means of production on the supply side will even show negative revenue such as China retail marketplace and local consumer services,” she added.” But overall, we remain optimistic about China and remain confident about long-term growth prospects. Whatever we see right now, we believe it is a one-off occurrence.”
The company shared that it too was facing labor issues. Couriers for Cainiao; its logistics services were at less than 20 percent availability. That being said, it assured the financial impact of the worker shortage would not be as substantial given that Cainiao’s revenue base has expanded to technology products, which it charges a fee for, and a solid revenue performance from its last-mile services.
The company also pointed to a long-term upside with the quarantine measures creating an acceleration of online purchasing behavior, particularly in lower-tier cities and in the categories of groceries and daily goods, as well as an explosive growth rate in its remote work-from-home software, Ding Talk, which it has provided to its merchants and their employees at no cost.
Earlier, Alibaba unveiled 20 different measures to help merchants on its platform weather this period. These included the waiving of all platform service fees for the first half of the year, reductions on warehouse and logistics fees, and low-interest loans for merchants via its financial services arm, Ant Financial.
Alibaba ceo Daniel Zhang commented that apparel and consumer electronics faced “big challenges” in the supply chain but also “a reduced willingness [from consumers] to make those kinds of purchases at the height of the epidemic.”
But he expected a quick rebound once the virus subsides. “The demand is still there and I strongly believe that after the virus goes away, the consumers have a strong desire because they have been at home for a long time, they will go out to consume.”
Business in January prior to the outbreak was strong, Alibaba said, and the company ended 2019 on a high note, having successfully created a secondary listing on the Hong Kong Stock Exchange.
For the quarter ended Dec. 31, Alibaba saw revenue grow by 38 percent to 161.45 billion renminbi, or $23.19 billion, driven by its China retail business and cloud computing, the latter which generated revenue of over 10 billion renminbi in a single quarter for the first time. Net income attributable to ordinary shareholders was 52.31 billion renminbi, or $7.51 billion.