Although Alibaba reported blockbuster earnings to close out 2019, CEO Daniel Zhang is signaling a potentially tepid start to the new year due to the effects of coronavirus.
“Like all the other companies in China, we are confronted with a black swan event soon after the start of 2020, the novel coronavirus,” Zhang said on today’s investors call. “The outbreak is having significant impact on China’s economy and may potentially affect the global economy. It will present near-term challenges to the development of Alibaba’s business across the board.”
Alibaba CFO Maggie Wu noted that the company’s supply and logistics operations have been negatively impacted by the coronavirus. The firm’s means of production have been hampered by office, factory and store closures, Wu said. Alibaba has also seen decreased willingness from consumers to purchase non-essentials, including apparel and electronics.
For these reasons, the e-commerce giant forecasts a negative impact in overall revenue growth for the current quarter, particularly with respect to its operations that depend on physical means of production.
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Despite sounding caution on the current quarter, Wu said she is still “optimistic about consumption growth in China and continue[s] to be confident about [its] long-term growth prospects.”
“Whatever we are seeing right now, we believe this is a one-off occurrence. By helping our customers through difficult times, we and they will emerge even stronger, and we will have greater opportunity to drive long-term sustainable growth,” she said.
For the three months prior to Dec. 31, Alibaba posted revenue of $23.2 billion, a 36% gain, besting analysts’ expectations of $22.8 billion. Earnings were up by almost 50% compared with the same period in 2018. The strong sales were driven in part by the success of the e-tailer’s 11.11 Global Shopping Festival, also known as Singles’ Day, where it recorded gross merchandise volume of 213.5 billion yuan (more than $38 billion).
In total, more than 60,000 cases of coronavirus, which originated in the central China city of Wuhan, have been confirmed globally, and over 1,300 deaths have been reported. In China’s Hubei province, home to Wuhan, 254 new deaths and upwards of 15,000 additional cases were reported on Thursday local time, a nearly tenfold increase over the previous day. The update was released a day after a Chinese Health Commission report suggested the number of newly reported coronavirus infections on the mainland were sliding to the lowest rate in two weeks.
Alibaba is hardly alone in predicting lower revenue due to the outbreak. More than 400 companies have already seen or have forecasted revenue drops because of coronavirus, among them Ralph Lauren Corp., Columbia Sportswear Co. Skechers USA Inc., Tapestry Inc. and Capri Holdings Corp.
In an attempt to prevent further spreading of the virus, Chinese government officials have placed restrictions on travel within the country. Several major international retailers have closed outposts or reduced operating hours in heavily infected areas, including Adidas, Nike, PVH Corp., Tapestry and Skechers.