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Alibaba said it is working on a rival to ChatGPT, an artificially intelligent chatbot that is causing excitement around the world. Alibaba said its products are currently undergoing internal testing.
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Alibaba beat expectations by reporting third-quarter earnings, with the tech giant’s U.S.-listed shares up 6%.
Method is as follows Alibaba ran against Refinitiv’s consensus forecast for the third quarter from October to December 2022 as follows:
- Revenue: CNY 247.76 billion ($35.92 billion), up 2% year-on-year to CNY 245.18 billion.
- Earnings per US depository share: 19.26 yuan vs. forecast 16.26 yuan, up 14% year-on-year.
- Net profit: RMB 46.82 billion vs. RMB 34.02 billion, up 69% year-on-year.
About $600 billion has disappeared from Alibaba’s value since its peak in October 2020. That’s because the strict regulatory environment for China’s tech companies, his strict Covid-19 control policies, and the ensuing economic slowdown have hit the e-commerce giant.
Hong Kong’s Alibaba shares closed higher before Thursday’s results as investors bet that China’s economic reopening will boost consumer sentiment and spending, ultimately helping the e-commerce giant rice field. During the December quarter, China abruptly ended its strict Covid controls, including lockdowns, but this is unlikely to be fully reflected in the quarter.
Meanwhile, China’s tightening of regulations over the past two years has begun to ease as rule enforcement becomes more predictable.
Revenues from China’s commercial sector, including Alibaba’s biggest business, popular marketplace Taobao, totaled 169.99 billion yuan, down 1% year-on-year. The decline was driven by a 9% year-on-year decline in customer management revenue from Alibaba’s marketing and other services sold to merchants on Taobao and his Tmall e-commerce platform.
According to Alibaba, total merchandise volume, or transaction value across its online shopping platform, declined mid-single digits year-on-year, primarily due to weak consumer demand and ongoing competition, as well as the surge in COVID-19. A case in China that caused supply chain and logistics disruptions in December.”
The company said it is seeing a recovery in China’s economy and consumption.
“Looking ahead, we expect consumer sentiment and economic activity to continue to recover,” Alibaba CEO Daniel Zanghe said in a press release.
With activity in China slowing, Alibaba has sought growth in overseas markets through its Southeast Asian business Lazada and global e-commerce site AliExpress. International commerce revenue reached CNY 19.47 billion, up 18% year-on-year.
Analysts expect Alibaba to see faster revenue growth over the next few quarters as the effects of China’s economic reopening are fully felt. In a recent memo, Morgan Stanley named Alibaba its “top pick” for China’s tech sector for the first time in three years.
Improve profitability
Last year, Alibaba embarked on the following measures: Control costs to improve profitability. The company is trying to find a balance between cost and continuing to make significant investments for long-term growth.
Those efforts appear to have paid off with a 69% year-over-year increase in net profit. The company’s operating margin for the December quarter was his 14%, up from his 3% in the same period last year.
In the December quarter, Alibaba was able to cut losses across all its businesses, including its logistics division Cainiao and its cloud division.
Alibaba Chief Financial Officer Toby Xu said in a press release:
Alibaba had 239,740 employees at the end of the December quarter, down more than 4,000 from the previous quarter.
Cloud slowdown continues
Alibaba reported cloud revenue of CNY 20.18 billion in the third quarter of the fiscal year, up 3% year-on-year. This marks a slowdown from the 4% revenue growth seen in the previous quarter and remains far from the 30%+ growth seen in the past.
Cloud computing accounts for just 8% of the company’s revenue, but analysts see it as a future growth driver for the company.
Alibaba said it has also seen growth from industries outside the internet, such as financial services, education and auto companies, using its cloud services. However, income from the public service industry declined.
Alibaba said earlier this month that it was working on a ChatGPT-style technology that could be integrated into its products. ChatGPT is OpenAI’s very popular chatbot product. This is an example of so-called generative AI, which uses artificial intelligence to generate images and text.
Zhang said on Thursday’s earnings call that Alibaba aims to “capture market opportunities” and provide the computing power needed for generative AI applications through its cloud division. Generative AI requires massive amounts of data processing to train AI models. This requires a lot of computing power that cloud companies can provide.
“We expect the demand for computing power to grow exponentially,” Zhang said, as these technologies develop.
Alibaba buyback continues
The company is also trying to boost shareholder confidence amid a slump in stock prices. In November, Alibaba announced that its board had approved an additional $15 billion as part of an existing $25 billion share buyback program that was extended through the end of fiscal 2025.
Alibaba said in the December quarter it had bought back 45.4 million U.S. depository shares for about $3.3 billion under its share buyback program.