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Alibaba CEO: Coronavirus is a ‘black swan,’ may affect the global economy

Julia La Roche
·5 min read

Chinese e-commerce giant Alibaba Group’s CEO Daniel Zhang characterized the widening coronavirus crisis as a “black swan event” on Thursday, warning that the outbreak has potentially global implications.

During a call with analysts discussing the company’s fiscal third-quarter results that beat expectations, Zhang said that the coronavirus presents “near term” challenges to Alibaba’s businesses that will have “significant impact” on China and beyond.

As the numbers of those affected continue to rise, economists and businesses have made sobering remarks about the outlook for worldwide growth.

On Thursday, Alibaba reported its revenue rose 38% year-over-year during a strong quarter. In the release, Zhang touted the “robust growth” across the lines of business, pointing to a record Single’s Day, increased user engagement, and rapid growth in the cloud computing services.

However, the coronavirus remained at the forefront of the company’s remarks to investors. The crisis has roiled markets with the estimated death toll reaching 1,350 and the number of confirmed cases topping 60,000 — most of them in mainland China.

“In response to the coronavirus, we mobilized Alibaba ecosystem’s powerful forces of commerce and technology to fully support the fight against the outbreak, ensure supply of daily necessities for our communities and introduced practical relief measures for our merchants,” Zhang said.

With a growing number of multinationals curtailing or shuttering Chinese operations and evacuating employees, Zhang said the company “took every effort to protect the health and safety of employees through flexible work policy and remote office collaboration.”

He added: “No matter past, present or future, we remain true to our mission and we will support our merchants to overcome this challenging time together,” he added.

Shortly after the outbreak, Alibaba began procuring medical supplies from around the world. To date, over 40 million units have been donated to Wuhan and other affected cities, Zhang said.

Zhang emphasized that they are “monitoring the challenge and identifying opportunity as the situation evolves.”

He observed that there’s been a delay in employees returning to work after the Chinese New Year, which is preventing merchants and logistics companies from assuming operations. According to Zhang, this is having a “negative impact” on commerce as merchants’ operations haven’t returned to normal. What’s more, a “significant number of packages are not able to be delivered on time.”

Strong growth amidst a pandemic

Both Alibaba and JD.com have seen a surge in online ordering since the virus forced China to mandate quarantines, keeping many citizens homebound.

The company’s Freshippo supermarket is seeing online order increase “significantly” as a “result of consumer migration to online purchasing” of fresh goods, groceries, and daily necessities, according to Alibaba. However, Zhang added that there are limitations in the delivery capacity that is preventing order volume from fully recovering.

While categories like grocery have increased, restaurant visits and delivery orders have declined because many restaurants haven’t resumed normal operations, Zhang added.

Travel booking also saw “material” numbers of cancellations because of the virus, he said.

Alibaba’s leadership emphasized that they’re committed to supporting their merchants by providing interest-free or low-interest loans through Ant Financial to help normalize merchants’ operations.

CFO Maggie Wu said it’s “too early to quantify the impact” coronavirus will have on the business.

She added that it’s impacting the overall economy in China, especially the retail and services sectors. While the demand for goods and services is there, the “means of production has been tempered” by the delay in openings after the Lunar New Year holiday.

Wu added that Alibaba is “not immune to this imbalance of supply and demand,” but the company sees “an opportunity to provide value and support.” According to Wu, this will help “translate into sustainable, long-term growth,” which is similar to what they saw after the 2003 SARS outbreak.

She said they “remain optimistic about consumption growth” and “remain confident about the long-term.” Wu emphasized that this is a “one-off occurrence” and by “helping customers through difficult times” that will “help drive” sustainable long-term growth.

UKRAINE - 2020/01/26: In this photo illustration the Alibaba logo is seen displayed on a smartphone. (Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images)
UKRAINE - 2020/01/26: In this photo illustration the Alibaba logo is seen displayed on a smartphone. (Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images)

Alibaba is viewed as a bellwether for Chinese consumption. In its release, Alibaba noted that its annual active users across its retail marketplaces reached 711 million, up 18 million from the prior quarter, with more than 60% coming from lower-tier Chinese cities. Elsewhere, mobile users hit 824 million in December, up 39 million from the prior quarter.

The e-commerce giant’s cloud computing was a standout during the quarter, with revenue climbing 62% to RMB10.7 billion ($1.5 billion).

Alibaba also touted a record during the 11.11 Global Shopping Festival, better known as Single’s Day. The shopping holiday booked RMB268.4 billion, or $38.4 billion, in Gross Merchandise Value (GMV), up 26% from a year ago. More than 200,000 brands took part in the event.

Shares of Alibaba (BABA) were last trading down more than 3.4% in the pre-market during the analyst call.

Julia La Roche is a Correspondent at Yahoo
Finance. Follow her on Twitter.

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