Alibaba Group Holding Ltd. forecast better-than-expected sales and pledged to invest in new growth arenas, signaling its intention to overcome a Chinese antitrust investigation that sparked the first loss in nine years.

Jack Ma’s flagship e-commerce company posted a net loss of 5.5 billion yuan ($ 852 million) – the first since 2012 – after the company fined Beijing $ 2.8 billion for monopoly Had swallowed behavior. It now intends to focus on its business and put “any additional profits” back into technology and hotly contested areas such as community trading, CEO Daniel Zhang promised on Thursday. Shares fell more than 6% in Hong Kong after Citigroup and CICC cut their price targets on fears that prioritizing growth will hurt profits.

Alibaba executives have tried to put a crackdown on Ma’s internet empire that has cut the Chinese internet giant’s market value by $ 260 billion. The April sentence marked the completion of a four-month investigation, but uncertainty remains as Beijing Alibaba and increasingly powerful competitors of Tencent Holdings Ltd. until Meituan continues to curb. No analyst asked directly what will happen to the broader crackdown on Thursday, although Zhang insisted that the company has accepted the fine and will move on.

“We sincerely accept the penalty and will resolutely ensure compliance,” said the CEO. “In the past fiscal year, we went through all sorts of challenges, including the Covid-19 pandemic, tough competition, an anti-monopoly investigation and a criminal ruling by the Chinese regulatory authorities. We believe the best way to meet these challenges is to look ahead and invest long-term. “

Alibaba’s shares are down about 35% from their October high, just before Mas’s now infamous swearwords against outdated regulations sparked a chain of events that torpedoed an IPO of his Ant Group Co. valued at $ 35 billion and an investigation into the E-commerce ushered in giant.

“The lack of tangible evidence of significant local stock gains, such as buying community groups or delivering groceries, remains a major concern for Alibaba,” said Bernstein analysts, headed by Robin Zhu. “We fear that Alibaba’s investments will be compared to selling the family silver until such data points occur.”

“There is still significant uncertainty at Alibaba,” said Andy Halliwell, an analyst at Publicis Sapient. “However, there is no doubt that in the face of the global pandemic and the recovering Chinese economy, Alibaba has benefited from its digital and technology strategy. However, it remains to be seen how Jack Ma’s behavior over the past year will have a lasting effect on the trust of the brand and investors. “

For a live blog of the conference call, click here.

Alibaba wants to give the impression that things are back to normal. Ma was spotted at an annual staff and family celebration on the sprawling Hangzhou campus this week, where children played in ball pools while company mascots posed for photos with staff in cosplay.

On Thursday, the company forecast that sales for the year ending March 2022 will grow at least 30% to more than 930 billion yuan, beating the average forecast of 923.5 billion yuan. That is a slowdown from 41% last year and comes after sales hit 187.4 billion yuan, better than expected, for the three months ended March.

However, the expected sales growth disappointed some analysts in light of the promise to increase spending. It is also unclear to what extent the increased investments, which include areas of local internet services and dealer solutions, could hurt margins. And reliable growth engines are slowing: Cloud revenue grew only 37% in the March quarter after a large, unidentified customer left, the slowest pace since 2014.

Zhang highlighted community commerce – an area that a number of competitors such as JD.com Inc. and Pinduoduo Inc. are now contending over – as an important way to reach subordinate and rural customers. Executives said Alibaba will be disciplined on spending without elaborating on it.

“Despite heady predictions, it is likely that we will see margins erosion, in part because of the investments the company is making in new business ventures,” Halliwell said.

What Bloomberg Intelligence Says:

Alibaba’s profitability could take a back seat as the company steps up its investments in the coming fiscal year to drive market expansion and more user gains and engagement. Alibaba is also likely to monetize its merchants less aggressively. The company promises to set tough metrics to evaluate these initiatives, but some of the spending may be inevitable as competition increases from Pinduoduo, JD.com, Meituan, and short video platforms like Kuaishou and Douyin. Margin in Alibaba’s core business is also being squeezed by the increasing shift towards stand-alone retail and direct sales operations, particularly the consolidation of Sun Art this quarter.

– Vey-Sern Ling and Tiffany Tam, analysts

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There remain a few other questions that Alibaba may have to grapple with in the coming year. The company, along with 33 other tech companies, has pledged to abide by monopoly laws and root out abuses such as enforced exclusivity agreements – actions with as-yet-unknown effects on growth. In general, the Chinese government is debating how to better control the invaluable online data of its internet giants that enabled their meteoric expansion over the past decade.

The government is said to be considering forcing Alibaba to shed media stocks that supported its brand. Antitrust authorities are reviewing their previous investments and could force a sale if they violate the rules.

Then there is Alibaba’s financial subsidiary Ant, a large financing provider for Alibaba’s consumers, who is still arguing with regulators over a forced restructuring that could limit its lending business. Earnings for the December quarter rose 50% to 21.8 billion yuan, although bottom line results will remain under pressure from the debt cut commitment.

Alibaba is trying to resume business as usual as competition in China’s e-commerce market increases.

Pinduoduo recorded 788 million annual active shoppers in the December quarter, dethroning Alibaba as China’s largest consumer e-commerce operator for the first time. On Thursday, Alibaba reported that its users in China rose to 811 million in the three months to the end of March.

Junky upstart like ByteDance Ltd. and Kuaishou Technology are entering social shopping and driving the growth of its Taobao Live service. Other platforms such as Meituan, Didi and MissFresh operated by Tencent Holdings Ltd. have made aggressive investments in their community grocery business, allowing Hangzhou-based Alibaba to catch up in the red-hot sector.

– With the support of Zheping Huang and Lulu Yilun Chen

(Updates with analysts and actions from the second paragraph)

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