Alibaba Was All Smiles, Even With China’s Economy On Its Back

Alibaba Was All Smiles, Even With China’s Economy On Its Back

over 1 year ago2 mins

Mentioned in story

Data out on Thursday showed that China’s economy was a burden on Alibaba’s core business, but the Chinese ecommerce giant’s happy enough.

What does this mean?

China’s economic woes have taken a toll on Alibaba: while the firm inched sales up by 3% last quarter from the same time last year, takings from its all-important customer management services (CMR) division were 7% lower – a flashing signal that Chinese firms are trimming their advertising budgets. But business was better elsewhere: Alibaba’s cloud segment and international businesses pulled their weight, helping hoist overall profit up 29% from this time last year. For investors, it looks like it pays to be committed: Alibaba upped its share buyback plans by $15 billion, on top of the $25 billion it’s already announced.

Alibaba results

Why should I care?

Zooming out: You won’t make a dime looking out the rearview mirror.

Investing’s all about focusing on the future, and that looks more promising these days. See, Chinese officials recently unveiled a laundry list of initiatives designed to give its slumbering property market and Covid-stunted industries a wake-up call. Investors, rejoice: China’s recovery would bolster domestic firms like Alibaba, that’s for sure, but it would also cheer up any business that trades with China or relies on the country’s mega-factories for supplies.

China economy
Source: Bloomberg

The bigger picture: Safety first.

The mere thought of China’s recovery might have you running to invest in the country’s famous tech giants, but wait one second. You can only buy into companies like Alibaba through US-listed American Depository Receipts (ADRs) – but careful, that gets complicated. See, when you buy into a Chinese firm in this way, you’ll actually be investing in a “variable interest entity” (VIE): they’re essentially offshore shell companies, and they give you no actual ownership of Chinese assets at all. And when tensions rise between China and the US, VIEs come under fire – and that could essentially turn your investments into dust.



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