A person walks next to the Alibaba company logo in front of the office building in Chaoyang Technology Park in Beijing, China.
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BEIJING – Chinese e-commerce giants Alibaba And JD.comThursday’s quarterly results underscored a slowdown in China’s consumer market, with retailers struggling to attract price-conscious customers.
Major U.S. consumer goods brands have pointed to weak demand from China in their second-quarter reports, with some companies also noting that domestic players have become tougher competitors.
Alibaba said revenue from merchant commissions and advertising on its Chinese platforms rose 1 percent in the quarter ended June 30 compared with the same period a year earlier, down from 5 percent growth in the previous quarter. Direct sales deepened their year-over-year decline to 9 percent for the two quarters, from 2 percent, the filings showed.
JD.com said its average order value fell year-on-year for the quarter ended June 30, partly due to “weak consumer spending.” The company is known for slightly higher-priced products and next-day delivery thanks to its own logistics business.
On Wednesday, TencentOperator of the social media and messaging app WeChat also reported slower revenue growth from users’ financial transactions compared to the same period last year: 4%, compared to 7% in the previous quarter and 15% in the same period last year. WeChat is one of the two dominant mobile payment apps in China.
Alibaba said on Thursday that the valuation of its subsidiary Ant Group, which operates China’s other major mobile payment app Alipay, had fallen, prompting an impairment charge related to stock-based employee awards, leading to a 10% year-on-year decline in the related profits Alibaba earned in the quarter.
China reported on Thursday that retail sales rose 2.7 percent in July from the same period last year, after rising just 2 percent in June, well below past sales growth.
A slump in the real estate market, which accounts for a large portion of Chinese households’ wealth, and uncertainty about future income are weighing on consumer sentiment.
Slower GMV growth
Alibaba said on Thursday that its main e-commerce businesses in China, Taobao and Tmall, posted “high single-digit online growth in gross merchandise value” in the quarter ended June 30. Gross merchandise value is an industry measure of sales over a period of time.
Alibaba did not provide any specific GMV figures. Total revenue for the Taobao and Tmall group fell 1% year-on-year.
In the previous quarter, Taobao and Tmall recorded double-digit GMV growth, according to the company, while Alibaba reported an increase in Taobao and Tmall’s GMV in the year-ago quarter, but did not specify by how much.
Combating value hunters
Consumers in China are increasingly looking for products that offer good value for money, regardless of their income level, Jasmine Bai, China internet analyst at Haitong International Securities Group, said on CNBC’s “Street Signs Asia” on Friday.
This has led to fierce competition between e-commerce platforms such as PDD, JD.com and Alibaba, as they tend to focus on the cost-conscious and price-oriented consumer, Bai said.
Alibaba and JD.com are struggling to compete with heavily discounted products that are PDD investments“Pinduoduo app in China and ByteDance’s Douyin, the Chinese version of TikTok.”
ByteDance is not publicly traded. PDD has not yet announced when it will release its second-quarter results. Last year, it did so on August 29.
Is the price war on the decline?
Analysts at Nomura said this week that their conversation with an unnamed Douyin employee revealed that the app’s e-commerce growth slowed so sharply in the second quarter that the company is likely to miss its own target of 30 percent GMV growth this year.
Citing the same conversation, the report said Douyin’s management has recognized that excessive emphasis on low prices has led to a decline in gross merchandise value and will this month ease the pressure on merchants that has forced them to sell at low prices.
ByteDance did not immediately respond to a request for comment.
Nomura analysts said Douyin’s moves could help boost the e-commerce industry’s profit margins, benefiting Alibaba, the largest player in the space.
Alibaba’s Hong Kong-listed shares rose 5 percent in afternoon trading on Friday, while JD’s rose 9 percent. Tencent’s shares were more than 1 percent higher on Friday.
Michael Burry, best known for his prescient bet against mortgage-backed securities before the 2008 global financial crisis, made Chinese internet stocks one of his top holdings last quarter, according to the latest filings.
– CNBC’s Sonia Heng reported from Singapore.
