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Alibaba cuts its revenue forecast as growth slackens

Alibaba’s long stretch of growth finally broke after the Chinese e-commerce giant reported somewhat underwhelming financial results for its Q2 2019 quarter.

The company fell short of market expectation as it rang up RMB 85.15 billion ($12.398 billion) in revenue during Q2 2019, coming in slightly below Bloomberg’s estimate of RMB86.58 billion, or $12.4 billion. The company has also cut its forecasted annual revenue target by four to six percent — within a range of RMB375 billion to RMB383 billion — although it did not provide an explanation for this adjustment.

This is far from doom and gloom. The e-commerce giant’s revenue is still growing at a decent rate of 54 percent year-over-year, but this quarter marks the first time its revenue growth has fallen under 55 percent since its 3Q 2017 — that was some seven quarters ago in January 2017.

The company posted a net income of RMB18.2 billion ($2.66 billion) for the period, which was up 5 percent year-over-year.

Alibaba’s commerce business, its most lucrative division, grew 56 percent year-over-year to reach RMB72.48 billion ($10.55 billion) in revenue, down from a 61 percent growth the previous quarter, but factors influencing this quarter can be found elsewhere.

One major reason for the so-so financial result, Alibaba said, is that it has been investing heavily in logistics, entertainment, international expansion, and neighborhood services. In August, it officially consolidated its online-to-offline (O2O) play when it merged its Koubei local services platform with Ele.me, the food delivery network it acquired in a deal that also saw Alibaba and SoftBank pump a $3 billion investment.

Shares of the e-commerce behemoth are trading up five percent in the pre-market. The company is bracing for Singles Day, an annual event that has turned into the world’s largest shopping spree since it started ten years ago.

This year will see Alibaba continue to drive growth offline with a plan to deploy retail solutions to 200,000 stores across China, while it is also putting more emphasis on expanding the festival into its international markets. In particular, that’s likely to be India, where it is an investor in Paytm, Southeast Asia, where it owns and operates Lazada, and Russia, where it recently launched a joint venture focused on e-commerce, games and social services.

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