After reporting flat revenue growth (as a public business) for the second quarter of its fiscal year, Alibaba, the world’s largest tech corporation, has reduced its sales and marketing spending. The company’s development was delayed by a 1% drop in sales from its China commerce sector, even if the cloud computing arm made up for some of this by boosting its topline by 10% during the time.
The sales and marketing spend as a percentage of revenue decreased from 13% in the June quarter of last year to 12% this year, according to a business fact sheet. Toby Xu, chief finance officer of Alibaba, said in a post-results review that “Sales and Marketing Expenses Ratio Decreased… Reflecting Our Efforts in Optimising User Acquisition and Retention Spending Across Businesses.”
Its weak performance also had an impact on its ad revenue. According to Xu, “Total advertising revenue decreased slightly more quickly than GMV reduction.”
Alibaba’s three challenges
Due to increased regulatory scrutiny, supply chain constraints, and resurgent Covid headwinds throughout China, Alibaba reported its quarterly results. The company reported revenue for the June quarter of RMB 205.55 billion yuan ($30.68 billion), unchanged year over year compared to RMB 205.74 billion yuan. Operating income fell by 19% year over year to RMB 24.94 billion ($3,724 million). Over two-thirds of its revenue, or $141.93 billion ($21.19 billion), comes from its China commerce division, which decreased from RMB 144.02 billion a year ago.
Daniel Zhang, chairman and CEO of Alibaba Group, said in a media statement, “During the past quarter, we actively reacted to changes in the macro environment.” “June saw hints of revival across our businesses after a somewhat poor April and May.”
China commerce sluggish
The gross merchandise value (GMV) generated by its Taobao and Tmall companies fell by “mid-single digit year-over-year” during a difficult quarter for its China commerce sector. Alibaba reported that during the quarter, orders decreased for important areas like fashion and accessories and consumer electronics. However, the 6.18 shopping festival assisted these platforms in regaining some lost momentum. However, its direct-to-consumer business had strong growth, increasing by 8% in the quarter to reach RMB 64.74 billion (or about $9.6 billion in size). This was primarily fueled by an increase in online purchases of food, groceries, and FMCG products on Freshippo, Tmall Supermarket, and Sun Art.
Cloud business shines
The company’s cloud division, which generated $17.68 billion (more than $2.6 billion) in revenue after inter-segment reduction, was the standout performer elsewhere. Financial services, governmental services, and the telecommunications industries all contributed to growth. Alibaba lost business as a result of its “top internet customer” ceasing to use the company’s foreign cloud services for its operations. Chinese internet companies were early consumers of Alibaba’s cloud computing products, but CEO Zhang told investors that adoption has now extended more widely. “(This) give(s) our Alibaba Cloud a very large possibility to transform cloud computing from a technology into an actual business,” he continued.
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