Alibaba, JD.com results underscore the slowdown in Chinese consumer demand

BEIJING — Chinese e-commerce giants Alibaba and JD.com‘s quarterly results from Thursday underscored the slowdown in China’s consumer market, with retailers struggling to attract value-conscious customers.

Major U.S. consumer brands have highlighted the softness in demand from China in their second quarter reports, with some companies also indicating how local players had become tougher rivals.

Alibaba said revenue from merchant commissions and advertising on its China platforms rose by 1% in the quarter ended June 30 from a year ago. That’s down from 5% year-on-year growth in the previous quarter. Direct sales steepened their year-on-year decline to 9% from 2% for the two quarters, filings showed.

JD.com said for the quarter ended June 30, its average order value declined year on year, partly as a result of “soft consumer spending.” The company is known for slightly higher-priced products and next-day delivery thanks to its in-house logistics business.

On Wednesday, Tencent, which operates social media and messaging app WeChat, also reported slower year-on-year revenue growth from users’ financial transactions at 4% versus 7% in the prior quarter and 15% in the year-ago period. WeChat is one of the two predominant mobile payment apps in China.

Alibaba said Thursday that there was a drop in the valuation of its affiliate Ant Group, which runs the other major mobile payment app, Alipay, in China leading to an impairment charge related to share-based employee awards. That resulted in a 10% year-on-year drop in related profits that Alibaba earned during the quarter.

China reported Thursday that retail sales rose 2.7% year on year in July after growing by just 2% in June. That’s far lower than the retail sales growth seen in the past.

A slump in the real estate market, which accounts for a bulk of household assets in China, and uncertainty about future income has weighed on consumer sentiment.

Alibaba said Thursday that for the quarter ended June 30, its primary Taobao and Tmall e-commerce business in China saw “high single-digit online GMV growth.” Gross merchandise value is an industry measure of sales over time.

Alibaba did not provide specific GMV figures. Total Taobao and Tmall group revenue fell by 1% year on year.

In the prior quarter, the company said Taobao and Tmall saw double-digit GMV growth, while in the year-ago quarter, Alibaba said Taobao and Tmall GMV had risen, without specifying by how much.

Consumers in China are increasingly seeking value-for-money products regardless of their income level, Jasmine Bai, China internet analyst at Haitong International Securities Group, said Friday on CNBC’s “Street Signs Asia.”

That’s resulted in fierce competition among e-commerce platforms such as PDD, JD.com and Alibaba, as they focus on a more cost-conscious, value-seeking consumer, Bai said.

Alibaba and JD.com have struggled to compete with highly discounted products sold on PDD Holdings‘ Pinduoduo app in China, and ByteDance’s Douyin, the Chinese version of TikTok.

ByteDance is not publicly traded. PDD has yet to announce when it will release second-quarter earnings. Last year it did so on Aug. 29.

Nomura analysts said this week that their conversation with an unnamed Douyin employee revealed the app’s e-commerce growth had slowed so much in the second quarter that the company would likely miss its own target of 30% GMV growth this year.

Citing the same conversation, the report said Douyin management recognized excessive emphasis on low prices had led to a decline in GMV, and will be easing pressure on merchants this month that had forced them to sell at low prices.

ByteDance did not immediately respond to a request for comment.

The Nomura analysts said Douyin’s steps could help boost the e-commerce industry’s profit margins, to the benefit of Alibaba, the largest player in the space.

Alibaba’s Hong Kong-listed shares rose by 5% Friday in afternoon trading, while those of JD were up 9%. Shares of Tencent traded more than 1% higher on Friday.

Michael Burry, best known for his prescient bet against mortgage-backed securities before the 2008 global financial crisis, made China internet stocks some of his top holdings last quarter, according to the latest filings.

— CNBC’s Sonia Heng contributed reporting from Singapore.