China’s economic headaches will impact Alibaba’s sales as consumers shy away from spending, but the e-commerce giant hopes that Singles’ Day in November will help get things back on track.
In a discussion with Citigroup analyst Thomas Chong during a tech conference held by the research firm on Tuesday, Alibaba head of investor relations Jane Penner said the company continues to see high user engagement on its platforms, including mobile apps, but lower average order volumes.
Alibaba’s share price has dropped about 20 percent over the last month as China faces uncertain economic growth and consumers worry about government measures meant to stabilize its GDP, including the devaluation of the yuan in August.
Macroeconomic factors aside, investors were also concerned by Alibaba’s gross merchandise volume (GMV) after its Q2 2015 earnings report, when the company disclosed its slowest GMV growth in three years.
During the Citigroup event, Penner said “I think given the stable trends in Chinese wage growth, job creation, and household net assets, we believe the consumers still have the willingness and ability to spend. That said, we are observing some negative impact of the spending. We think this is more due to psychology than to an ability to spend.”
The drop in purchases means that Alibaba “believe[s] that our September quarter GMV will be mid-single digits lower than our initial expectations.”
Penner added that Alibaba Group has not changed its guidance for 2016, with the margin of its core operating business remaining stable in the high 50s, with potential decreases stemming mostly from discretionary investments.
“We reported a 52 percent non-GAAP EBITDA margin in June and that was lower than the 54 percent in the year-ago quarter and is very consistent with the message that we’ve given that we would be comfortable actually in fiscal 2016 potentially taking margin down even further. What we said is that we would be comfortable taking it down about 3 percent to 5 percent where we ended fiscal 2015, which was at 53 percent. So we reported 52 percent last quarter, but that guidance is really for the full year and it’s really still intact.”
November may get a boost if Singles’ Day deals are enough to entice wary customers. Similar to Black Friday and Cyber Monday in the U.S., Singles’ Day is China’s biggest online shopping event and last year’s scored Alibaba a record $9.3 billion in revenue, with its online payments service Alipay getting a boost as well.
As Alibaba Group carries on despite China’s slowing economy, its priorities will include expanding C2C marketplace Taobao, which is already China’s largest shopping site, and reducing counterfeits and “brushing” (or fake transactions unscrupulous vendors use to improve their ranking). Knock-offs are a huge problem for Alibaba and it has said it spends more than $16.1 million a year to fight counterfeits using data mining tools that identify fakes and areas were they are being manufactured.
Penner said Alibaba’s war on counterfeits and other illicit practices will “impact our GMV near term, but it makes our business more sustainable and competitive in the long-term and we think that makes it well worth doing.”