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Alibaba Touts Post-Virus Rebound While Watching ‘Fluid’ U.S.

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(Bloomberg) —

Alibaba Group Holding Ltd.’s revenue growth returned to levels not seen since the pandemic, fueling hopes of a Chinese economic recovery despite worsening U.S. relations.

China’s most valuable corporation reported better-than-expected 34% sales growth in the June quarter, a shade off the 38% it managed in the December quarter before Covid-19 shut down swaths of the country. That underscored how the e-commerce giant is riding a pick-up in consumer spending in a country among the first to recover. But Chief Executive Officer Daniel Zhang said it will keep a close eye on “very fluid” U.S. policies toward China.

President Donald Trump has made a tough position on the world’s No. 2 economy a key element of his campaign in the lead-up to the U.S. elections, sanctioning or threatening to clamp down on the Asian country’s biggest technology companies. Both sides have clashed on issues from the coronavirus to trade, while lawmakers brandish regulations that may force Chinese corporations like Alibaba off U.S. bourses. Its shares slid about 2% in New York.

“We face uncertainties from not only the global pandemic but also increasing tensions between U.S. and China,” Zhang told analysts on a call. “We are assessing the situation and any potential impact carefully and thoroughly, and will take necessary actions to comply with any new regulations.”

Read more: Alibaba Appeals to Trump, Says Supports China and America

Alibaba reported sales of 153.8 billion yuan ($22.2 billion) and net income of 47.6 billion yuan in the June quarter, both surpassing projections. Some of that stemmed from record sales during a June shopping event this year, as heavy discounting lured shoppers who had delayed purchases during the national lockdown. It said annual active consumers in China had now grown 16 million to 742 million, powering a 34% rise in its core commerce business.

Ant Group, Alibaba’s 33%-owned financial affiliate, grew profit roughly six-fold to $1.3 billion in the March quarter, offering a glimpse into its earnings power ahead of a mega initial public offering in Hong Kong and mainland China.

Read more: Jack Ma’s Ant Seeks $200 Billion Value in Landmark Dual IPO

What Bloomberg Intelligence Says

The result validates the thesis that Alibaba will emerge from the pandemic stronger than before. Once the operational disruptions in the March quarter are overcome, the company will benefit from the accelerated shift of users and merchants to digital channels for consumption.

– Vey-Sern Ling, analyst

Click here for the research.

Landing in the White House’s cross-hairs could in the long run endanger a roughly $695 billion empire spanning online retail, food delivery and internet computing. Trump, who has issued orders barring American individuals and companies from doing business with Tencent Holdings Ltd.’s WeChat and ByteDance Ltd.’s TikTok, has said he’s considering extending a ban to other Chinese companies. Congress is moving closer to legislation that could bar Chinese firms from trading on U.S. bourses. And India is growing increasingly hostile, though Alibaba said the withdrawal of its UCWeb browser service there shouldn’t have a material impact on its overall business.

But growing competition at home is the more immediate challenge. Its market position is being chipped away by multiple competitors. Upstart Pinduoduo Inc. has lured small-town buyers away with cheaper bargains. Arch-foe JD.com Inc. has ventured beyond its traditional strength in consumer electronics into groceries, with supermarket goods the biggest contributor to its first-half revenue among all product segments.

How Apps Like TikTok Became a Cybersovereignty Issue: QuickTake

Read more: Trump Adds to Earnings Threat as Alibaba Challenged in China

More broadly, social media companies like ByteDance and Tencent are increasingly reaching out to shoppers through live-streaming, after Covid-19 fueled an unprecedented boom in online entertainment. Alibaba’s Taobao Live has championed the use of influencers to hawk everything from lipstick to crayfish. While rival video apps like Tencent-backed Kuaishou and ByteDance’s Douyin typically direct traffic to Alibaba platforms, they are now seeking to handle the transactions by themselves.

Competition in food delivery is also intensifying. Alibaba’s Ele.me app now delivers flowers, housekeepers and masseurs in addition to lunchboxes, as Tencent-backed rival Meituan Dianping diversified into beauty products and handsets.

“The biggest challenge for Baba going forward is that e-commerce is no longer a two-horse race. JD is challenging them at the top end of the market, and PDD are winning in many of the fast-growth lower tier markets which have been elusive to Baba, and is also aggressively expanding into higher tier cities and cross border,” said Mark Tanner, founder of Shanghai-based marketing and research agency China Skinny.

“Social/video commerce is taking an increasing share of the pie as all forms of digital consumption morph in sales channels — which arguably presents the biggest red flag.”

(Updates with shares from the third paragraph)

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