Alibaba Group Holding Ltd. warned that the coronavirus responsible for killing more than 1,300 people in China is exerting a fundamental impact on the country’s consumers and merchants, and will hurt its revenue growth in the current quarter.
Alibaba, the first major Chinese technology corporation to report results since the epidemic emerged in January, said the virus is undermining production in the economy because many workers can’t get to or perform their jobs. It has also changed buying patterns with consumers pulling back on discretionary spending, including travel and restaurants.
The Chinese e-commerce giant made the comments after reporting strong financial results for the quarter that ended in December. Revenue surged a better-than-expected 38% to 161.5 billion yuan ($23.1 billion), while net income rose 58% to 52.3 billion yuan.
But Chief Executive Officer Daniel Zhang and Chief Financial Officer Maggie Wu were clear about the fallout from the deadly virus on employees, suppliers and merchants. Many merchants that work with the company have not been able to return to normal operations because of a shortage of employees. Alibaba’s U.S.-listed shares slid as much as 2.4% Thursday morning.
“The epidemic has negatively impacted the overall China economy, especially the retail and service sectors,” said Wu in a conference call after the results. “While demand for goods and services is there, the means of production in the economy has been hampered by the delayed opening of offices, factories and schools after the Lunar New Year’s holiday.”
Asked about the affect on Alibaba, she voiced caution about giving estimates because it’s only halfway through the March quarter.
“Overall revenue will be negatively impacted,” she said, adding that the hit to growth could be “significantly” negative.
Zhang said that they are seeing relatively large changes in buying patterns. While food delivery is growing, areas like clothing and electronics are running into logistical problems. He warned that the core e-commerce business suffered a negative impact in the first two weeks after the holiday. Restaurant orders and travel bookings have also taken hits.
“It will present near term challenges to Alibaba’s businesses across the board,” he said on the conference call, adding that there will also be opportunities.
Alibaba is rolling out special programs to support merchants, including lowering the fees it charges and providing subsidies for delivery personnel. Zhang said the company is trying to keep its own staff safe, including having many work from home.
Zhang added that more workers are going back to work in Beijing, Guangzhou and Shenzhen. Many logistic companies are also recovering their capacity in the past 12 days.
Already, China’s most valuable corporation has struggled to sustain growth rates during an economic slowdown in its home market, and is now grappling also with the uncertainty of the coronavirus outbreak. While widespread home confinement is spurring demand for online services from grocery delivery to office apps to streaming entertainment, the disease is snarling nationwide transport and threatens in the long run to dent the consumer spending Alibaba depends on.
The disruption to Alibaba’s business from the virus “may be worse than feared,” wrote Bloomberg Intelligence analysts Vey-Sern Ling and Tiffany Tam in a report. “Alibaba’s sales may contract in its core China retail marketplaces and local services business in the coming quarter even if the coronavirus outbreak subsides, as logistic and production disruptions faced by merchants could take time to resolve.”
This week, the company declared a waiver of some service fees for merchants on its main direct-to-consumer Tmall platform to help those struggling with the fallout from the outbreak. That may further depress the top-line in 2020.
“It was always thought that Alibaba’s core commerce revenue would have the brakes applied to it either because of China’s macroeconomic condition, or slower user growth,” said Michael Norris, research and strategy manager at Shanghai-based consultancy AgencyChina. “But what this coronavirus event forces us to do is to consider a third scenario – where Alibaba’s revenue will take a hit from a reduction in merchant fees and advertising spend.”
Alibaba has shed 1.4% of its value since a broader Chinese selloff began in January, underperforming arch-rival Tencent Holdings Ltd., which as a mobile gaming and social media operator is better shielded in the short run from the epidemic.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
