Alibaba Earnings Could Suffer from Slow Chinese Consumer Spending

A two-year low in consumer price inflation has investors worried

Alibaba company logo on office building.

Robert Way / Getty Images

Alibaba (BABA), China's most valuable retailer, is likely to report a year-over-year boost in earnings per share but slow revenue growth as China's economy stumbles out of pandemic restrictions.

Key Takeaways

  • Alibaba is expected to report a year-on-year improvement in net income, which is forecast to rise to 0.54 yuan per share.
  • China’s economic recovery has stuttered since its 2023 reopening.
  • Record Chinese household savings could still boost e-commerce.

Alibaba is expected to report net income of 13.1 billion yuan ($1.9 billion), or 0.54 yuan ($0.08) per share, for the first three months of the year, according to analyst estimates compiled by Visible Alpha. That's a dramatic improvement from the year-ago quarter's loss of 0.75 yuan per share.

Revenue is forecast at 209 billion yuan ($30 billion), a 2.5% increase from a year ago, another quarter of sluggish growth for a company that before 2021 only knew double-digit sales growth. Cloud computing revenue is expected to grow 1% to 19.2 billion yuan. Alibaba will report earnings before U.S. markets open Thursday.

Investors have been worried about the strength of China’s recovery after finally lifting pandemic restrictions in January. Industrial production in April was 5.6% higher than a year ago, far short of the 10.9% increase analysts had been expecting. Imports fell 7.9% year-over-year in April, while export growth slipped to 8.5% from 14.8% in March.

"Insufficient aggregate demand is a prominent problem facing the economy," said Yu Yongding, former director of a government think tank.

Household bank deposits jumped by a record 17.84 trillion yuan ($2.6 trillion) in 2022, up 80% from 2021, according to the People’s Bank of China. Meanwhile, consumer price inflation rose in April at its slowest rate in two years, suggesting savers have yet to tap into their pandemic stockpiles.

Chinese stocks soared earlier this year after Covid restrictions were lifted. Foreign investors bought $20 billion in Shanghai- and Shenzhen-listed shares in the first month of 2023. But that appetite has cooled amid increased tension between the world's two largest economies. Foreign investment in Chinese stocks totaled just $6 billion between February and April.

Alibaba shares are almost unchanged over the last year, while the S&P 500 Consumer Discretionary sector is up 15.5%.

Year to date return of Alibaba stock, the S&P 500, and the S&P 500 Consumer Discretionary Sector (as of May 15, 2023).
Alibaba Key Metrics
   Q4 FY2023 (est.)  Q4 FY2022 Q4 FY2021
 Diluted earnings per share (CNY)  0.54  -0.75 -0.24
 Revenue (CNY, billions)  209  204 187
Source: Visible Alpha
Article Sources
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  1. Visible Alpha. "Financial Data."

  2. Alibaba. "Alibaba Group Will Announce March Quarter 2023 and Full Fiscal Year 2023 Results on May 18, 2023."

  3. CNBC. "China’s economic data misses expectations as economy continues to show uneven recovery."

  4. CNBC. "China’s exports rose 8.5%, continuing its growth streak at a slower pace."

  5. CNN. "China has an inflation problem. It's way too low."

  6. China Daily. "China's consumer demand expected to get boost from precautionary savings."

  7. The Wall Street Journal. "Chinese Consumer Inflation Slows to Lowest Level in Two Years."

  8. FT. "Overseas Demand for Chinese Shares Cools".

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