Alibaba said sales rose 38% in the quarter ended Dec. 31, before the coronavirus shut down much of China. PHOTO: LIONEL BONAVENTURE/AGENCE FRANCE-PRESSE/GETTY IMAGES
Alibaba Takes a Hit From Coronavirus
| le 14 February 2020
Chinese merchants can’t get their products made and workers remain stranded at home amid the outbreak
By Stu Woo – The Wall Street Journal
BEIJING— Alibaba Group Holding Ltd. BABA -1.76% said the coronavirus outbreak that has locked down residents across China is hampering the online-retail giant and may result in slowed growth as employees stay home from work and packages go undelivered.
“We are being tested,” Alibaba Chief Executive Daniel Zhang said Thursday.
China’s most valuable tech company is facing one of its biggest challenges in its 20-year history, and it falls to its new generation of leaders to tackle it after founder Jack Ma stepped away as Alibaba’s executive chairman last year.
Company executives said they expected challenges in the short run, but said Alibaba could benefit in the future as the lockdowns trapping people inside their homes encourage consumers to shift more purchases online.
Before the coronavirus epidemic shut down much of China starting in late January, Alibaba had been outperforming even lofty expectations. The company on Thursday reported that sales in the quarter ended Dec. 31 rose to 161.5 billion yuan ($23.2 billion), up 38% compared with the same period a year earlier, while quarterly net profit increased 58% to 52.3 billion yuan.
Mr. Zhang spent most of Thursday’s conference call focusing on Alibaba’s response to the coronavirus, which prompted many local governments in China to cut back on public transportation and lock down residents in an attempt to halt the spread of the virus. That has created a chain of problems for a company with a core business of delivering stuff to people.
A major part of Alibaba’s business is charging merchants to sell or advertise on its gigantic online marketplaces. But some merchants can’t get their products made at factories that remain dark. Workers are stranded at home, while some local governments have made it hard for manufacturers to reopen by requiring them to meet stringent safety requirements, such as providing all workers with masks and gloves that are difficult to buy amid a nationwide shortage.
The demand for products is there, but the supply isn’t, said Chief Financial Officer Maggie Wu. “The means of production in the economy has been hampered,” she said.
Then there are Alibaba’s own employees. The company said its logistics arm is operating at 20% of its capacity as many couriers can’t return to the workplace, and Mr. Zhang said a significant amount of parcels haven’t been delivered on time.
On top of that, Alibaba employees based in the company headquarters in Hangzhou have been working from home and communicating by video chat and other digital means, after some districts in the eastern Chinese metropolis locked down residents, permitting them to leave home once every few days.
Finally, consumers aren’t buying as much apparel and consumer electronics as they normally would, Mr. Zhang said. “There’s a reduced willingness from consumers to make those purchases at the height of the epidemic,” he said.
Alibaba, which also offers food-delivery services, said restaurant orders were also down as many eateries remain closed. But Mr. Zhang said Alibaba saw a significant increase in the online purchases of groceries and basic staples.
Getting people to try these online deliveries may benefit Alibaba after the coronavirus epidemic is over. “It will present near-term challenges to the development of Alibaba’s businesses across the board, but at the same we will see opportunities created by the forces of change,” Mr. Zhang said.
Ms. Wu, the finance chief, said growth may slow at Alibaba’s Chinese retail marketplace business, as well as its local-delivery businesses. She said it was too early for Alibaba to quantify the financial impact of the coronavirus, but believed it would be a one-off occurrence and that Chinese consumer demand would bounce back.