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Alibaba released its earnings for its fiscal Q3 2019 (ended December 31, 2018), announcing that it reeled in nearly $17.1 billion in revenue for the quarter. This was a solid 41% year-over-year (YoY) increase, but still represents a deceleration from the prior quarter, and is its slowest growth since early 2016, according to The New York Times.
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The company’s core commerce segment totaled $14.96 billion and jumped 40% YoY, marking Alibaba’s third consecutive quarter of decelerating growth in the metric.
The company’s relatively lackluster growth isn’t a surprise since it previously lowered revenue expectations for the year, in part due to China’s slowing economy. Alibaba has seen this issue impact the sales of durable goods, large ticket items, and consumer electronics, which hurts its overall retail business.
A main factor in this problem is the ongoing trade war between the US and China, and while there are some signs that it may end soon, Alibaba has to contend with adverse economic conditions while battling with competitors like JD.com until then.
Alibaba was able to post impressive revenue numbers despite China’s economic issues because of its Singles’ Day sales holiday, but the event’s performance decelerated as well. The company racked up 213.5 billion yuan ($31.8 billion) in gross merchandise volume (GMV) settled through Alipay on its marketplace, which represents a 27% YoY increase.
This is an immense amount of revenue over an incredibly short period, but it’s a deceleration from the 2017 iteration of Singles’ Day when Alipay settled $25.9 billion in GMV on Alibaba’s marketplace, jumping 39% YoY. It’s difficult to grow such a significant amount of revenue at a consistently high rate, but seeing Alibaba’s flagship sales event have its growth decelerate shows that the problems slowing Alibaba’s revenue growth are powerful.
Rural consumers are driving Alibaba’s user growth and are key to bolstering its overall performance. Alibaba’s retail marketplaces boasted 636 million annual active users in 2018, up from 601 million for the 12 months ended September 30, 2018. Over 70% of these new users are from “third-and-lower tier cities,” indicating that Alibaba has found success in attracting first-time and inconsistent users.
Bringing in more Chinese consumers and enticing them to become regular Alibaba customers gives the e-tailer a huge growth opportunity, considering consumption in smaller Chinese cities may triple by 2030. Alibaba has been attracting these consumers with simpler interfaces to make shopping easier for newcomers.
And its New Retail initiative, which aims to blend all channels of retail, can also help with this process; if Alibaba brings stores to more rural communities, it may find it easier to entice more consumers into its ecosystem since they might be more familiar with in-store shopping.
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