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14/02/2020 17:31

Alibaba comes through coronavirus crisis stronger than ever

[ET Net News Agency, 14 February 2020] For the first time in its history, Alibaba Group
Holding Ltd. (A+/Stable/--)(09988) could see year-on-year revenue decline for its
marketplace-based core commerce segment, S&P Global Ratings said.
Yet the credit rating agency believes this short-term pain may strengthen Alibaba's
competitive position in Chinese e-commerce. The recent coronavirus outbreak may also shift
more consumers to online spending, especially in categories with historically low online
penetration, such as fresh goods. While Alibaba is likely to face a challenging quarter or
two, S&P sees a growing rating buffer for the firm in the long run.
During yesterday's earnings call, Alibaba discussed the potential for a year-on-year
revenue decline for its marketplace-based core commerce segment during the March quarter
(its fiscal year ends in March). This comes amid disruptions to the supply and delivery of
physical goods, and Alibaba initiatives to support its online merchants.
the agency believes the hit from supply and logistics disruptions will be acute but
temporary. The company reported that its logistics operations have more or less normalized
over the past week after an initial period of operating at 10%-20% of normal capacity
after the Lunar New Year holiday.
The impact of Alibaba's initiatives to support online merchants on its financial results
may be more meaningful, possibly lasting until the fiscal first quarter (finishing June
2020). The company, along with its one-third owned Ant Financial Services Group, has
pledged to reduce or waive platform and commission fees over a three to six-month period,
provide zero or low-interest loans to affected merchants, set up a RMB 1 billion fund to
support affected supply chain and logistics partners, subsidize the incomes of couriers,
and many other initiatives.
While the economic cost of such initiatives may be significant in the near term, S&P
believes such actions will likely strengthen Alibaba's competitive position in e-commerce
and local services in the longer term.
Alibaba's measures will likely help its current merchants and may attract new ones to
the platform, particularly given that the actions imply support in the event of future
adversity. More merchants on the Tmall and Taobao platforms means greater diversity and
depth of products sold on Alibaba's e-commerce platforms relative to its peers, making the
platforms more attractive to consumers.
The growth of online grocery shopping by consumers during the outbreak may deliver
another potential unintended long-term benefit for e-commerce firms such as Alibaba and
JD.com Inc.
Fresh goods are one of the few remaining consumer categories with relatively low online
penetration and an area of focus of e-commerce platforms. As shoppers get comfortable
buying groceries online during the outbreak, such behaviors may stick long after the
coronavirus is gone. Growing internet sales of fresh goods may also be key to unlocking
further online retail penetration beyond the roughly one-quarter of total retail spending
in China currently.
S&P revised its fiscal 2020 revenue growth forecast on Alibaba to 30%-35% down from
40%-45%, but maintained its fiscal 2021 growth forecast of 20%-25%. Alibaba's rating is
capped by the China sovereign's rating (A+/Stable/A-1).
However, Alibaba's strengthening market position in the long run could provide more
rating buffer for the company to pursue broader investment. (KL)

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