Income set for the first fall

Alibaba has struggled with growth amid tighter regulation of China’s domestic tech sector and a slowdown in the world’s second-largest economy. But analysts believe the e-commerce giant’s growth could pick up before the end of 2022.

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Alibaba Analysts predict that revenue could decline for the first time ever when the June quarter earnings reports are released on Thursday, though that could signal a drop in sales.

The Chinese e-commerce giant is expected to report fiscal first quarter revenue of 203.23 billion yuan ($30.05 billion), down 1.2% from a year ago, according to Refinitiv consensus forecasts.

Alibaba’s revenue has plummeted over the past year amid Chinese economic slowdowna resurgence of covid and subsequent lockdowns, as well as tighter regulation of the domestic technology sector.

But the June quarter could be a bottom for Alibaba’s results as revenue is expected to improve in the coming quarters.

“Overall, we think investors are largely anticipating a soft June quarter and stocks are currently focusing on a recovery trend in the second half of the year, which we remain positive about as the government continues to step up economic stimulus measures to achieve GDP growth. target,” US Tiger Securities said in a report last month..

Refinitiv estimates that revenue for the September quarter will grow by 7%, while growth will be about 10% in the December quarter.

The softness in this week’s report will be mainly driven by the company’s weak trading earnings in China, China Merchants Securities said in a report released last month.

Weak consumption will weigh on customer purchases, while customer management or CMR revenue will also decline due to tighter vendor advertising budgets on Alibaba platforms, China Merchants Securities said in a statement.

CMR is the revenue that Alibaba generates from services such as marketing that the company offers to merchants on its Taobao and Tmall e-commerce platforms. Sellers cutting ad spend are hitting Alibaba’s CMR.

However, China Merchants Securities said it sees the Chinese merchant business as “a gradual recovery … with increased profitability through disciplined cost control.”

In the coming quarters, Alibaba could get a tailwind to help it recover. There are indications that China’s regulatory measures, during which Alibaba fined 18.23 billion yuan – is began to weaken.

Meanwhile, the Chinese government announced a series of economic stimulus in May to help the crisis-hit economy. resurgence of Covid and lockdowns in major citiesincluding the financial metropolis of Shanghai.

However, not all analysts expect Alibaba to return to explosive growth.

“When I visualize my ‘cone of all likely outcomes’, a lot of scenarios lead to a modest acceleration of growth back to adolescence, but I also see a whole category of scenarios in which fundamentals get worse.” John Freeman, vice president of CFRA Research, told CNBC via email.

“The cone is now very wide.”

Cloud computing in the spotlight

Apart from Alibaba’s core commercial business, investors are also focused on cloud computing revenue, although they still account for less than 10% of total sales. This is because investors are seeing Alibaba’s cloud efforts. as a key to the company’s future growth prospects and profitability.

“Re-accelerating the growth of cloud computing is key for me to become fundamentally positive again because cloud computing provides much more operating leverage than e-commerce execution and is inherently a much more profitable business,” said Freeman of CFRA.

“The cloud is responsible for much of Amazon’s value growth over the past decade, and that may be true for Alibaba eventually.”

Forecasts for the cloud business are mixed. US Tiger Securities expects cloud computing revenue to grow 8% year-on-year in the June quarter, the slowest growth rate on record. Meanwhile, China Merchants Securities is forecasting 13% year-on-year growth, a slight acceleration from the March quarter.