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Alibaba promises to increase spending after making its first loss since 2012

(Bloomberg) – Alibaba Group Holding Ltd. forecast better than expected sales and promised to invest in new growth areas. This signaled their intention to get past a Chinese cartel probe that triggered their first loss in nine years. The trading company recorded a net loss of 5.5 billion yuan ($ 852 million) – its first since 2012 – after the company fined $ 2.8 billion for Beijing-imposed monopoly behavior. The company now intends to focus on its business again and “invest all additional profits” back into technology and hotly contested areas such as community commerce, CEO Daniel Zhang promised on Thursday. Its shares fell more than 6% in Hong Kong after Citigroup and CICC cut their price targets on fears that prioritizing growth could hurt earnings. Alibaba executives have sought crackdown on Ma’s internet empire, which siphoned $ 260 billion from the Chinese internet giant in market value. The April sentence marked the completion of a four month investigation, but uncertainty remains as Beijing Alibaba and increasingly powerful rivals Tencent Holdings Ltd. until Meituan remains under control. No analyst asked directly about what will come in Thursday’s wider crackdown, although Zhang insisted the company accepts the fine and will move forward. “We sincerely accept the punishment and will make sure we keep the resolve,” said the CEO. “In the past fiscal year, we overcame all sorts of challenges, including the Covid-19 pandemic, fierce competition, and an anti-monopoly investigation and criminal ruling by Chinese regulators. We believe the best way to meet these challenges is to look ahead and invest for the long term. “Alibaba’s shares are down about 35% from their October high, just before Ma’s infamous joke against outdated regulations sparked a chain of events that torpedoed an IPO of its Ant Group Co. valued at $ 35 billion and one Ecommerce giant investigation: “The lack of concrete evidence of significant local stock gains, such as community group buying or grocery delivery, remains an issue of our great 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 are available.” “Alibaba is still fraught with significant uncertainties,” said Andy Halliwell, an analyst at the consulting firm 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 impact on brand and investor confidence. “Click here to read a live blog about the winning call. Alibaba wants to give the impression that business is 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 pits while company mascots posed for photos with staff in cosplay. On Thursday, the company’s revenue for the year ending March 2022 will rise at least 30% to more than 930 billion yuan, beating the average forecast of 923.5 billion yuan. This is a slowdown from 41% last year and comes after sales for the three moths, which ended in March, were better than expected at 187.4 billion yuan. However, the expected revenue 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 retailer solutions, could hurt margins. And reliable growth engines are slowing: Cloud revenue only rose 37% in the March quarter after a large, unidentified customer hit the slowest pace since 2014. Competitors such as JD.com Inc. and Pinduoduo Inc. – as an important way to reach customers in the lower and rural regions. Executives said Alibaba will be disciplined on spending without elaborating on it. “Despite heady predictions, margins are likely to decline due in part to the investments the company is making in new business ventures,” said Halliwell. What Bloomberg Intelligence Says: Alibaba’s profitability may take a back seat as investments ramp up in the coming fiscal year for market expansion, as well as greater profits and user engagement. Alibaba is also likely to monetize its merchants less aggressively. The company promises to establish strict metrics for evaluating these initiatives. However, some of the spending may be inevitable as competition from Pinduoduo, JD.com, Meituan, and short video platforms like Kuaishou and Douyin increases. Margin in Alibaba’s core business is also being hurt by the increasing shift to self-operated retail and direct sales operations, particularly the consolidation of Sun Art this quarter. – Vey-Sern Ling and Tiffany Tam, Analysts Click here for the investigation There are a few other questions that Alibaba may have to grapple with in the coming year. The company, along with 33 other technology firms, has committed to complying with monopoly laws and eliminating abuses such as enforced exclusivity agreements – measures with previously unknown effects on growth. In a broader sense, the Chinese government is debating how to better control the invaluable online data of its internet giants that have enabled their rapid expansion over the past decade. The government should consider whether to force Alibaba to lose media assets that have endorsed its brand. Antitrust watchdogs are reviewing their previous investments and could force a sale if it is seen as a violation of the regulations. Then there is Alibaba’s financial firm – Ant, a major financing provider for Alibaba’s consumers – who is still grappling with regulators over a forced restructuring that could curb lending. Earnings for the December quarter rose 50% to 21.8 billion yuan, although bottom line results will remain under pressure from the need to cut loans. Alibaba is looking to resume business as usual as competition in the Chinese e-commerce market increases, with Pinduoduo reporting 788 million annual active buyers in the December quarter, dethroning Alibaba from consumers as China’s largest e-commerce operator for the first time. On Thursday, Alibaba reported that its users rose to 811 million in the three months to March in China. Other platforms such as those of Meituan, Didi, and Tencent Holdings Ltd. MissFresh supported have made aggressive investments in their grocery store, leaving Hangzhou-based Alibaba to catch up in the red-hot sector. (Updates with analysts and joint actions from The Second Paragraph) For more articles like this, please visit us at bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP