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Alibaba Undertakes Aggressive Cost Cuts Amid Slowing Economy

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Alibaba Group Holding Limited (BABA - Free Report) recently announced that it is looking to curb travel expenses and postpone the recruitment of new personnel amid a weakening Chinese economy.

Reportedly, the company has delayed new hiring till April 2019. Moreover, to save on airfare, premium cabins will be offered to employees only on their fifth round-trip, which has an estimated travel time of more than 20 hours. Further, the taxis availed by employees till the airport will only be reimbursed when three employees are traveling together.
 
Notably, Alibaba’s aggressive stance will help it in curtailing unnecessary expenses. This move seems essential in view of the macro slowdown and ongoing U.S.-China trade war.  In September 2018, Alibaba founder and CEO Jack Ma stated that the effects of the trade war could last for 20 years.

Moreover, the tech giant also lowered its revenue guidance by 4-6% for fiscal 2019. Management believes that the economic impact of the U.S.-China trade spat could affect the company’s top line in the near term.

Slowing Economy Takes a Toll on Tech Giants

Per reports, Chinese economy witnessed growth rate of 6.6% in 2018, the slowest pace of growth since 1990. Notably, this slowdown has taken a toll on the company’s share price. Alibaba has lost 14.6% in the past year compared with the industry’s decline of 3.8%.

Apple AAPL too slashed its sales forecast for first-quarter fiscal 2019, blaming decelerating growth in China. The company also warned that iPhone sales will decline on a year-over-year basis, primarily due to weak demand in Greater China and fewer upgrades to its flagship device.

Recently, Baidu’s BIDU CEO warned company employees that the economic slowdown in China was "as cold and real as winter" for Baidu and other tech companies. Reportedly, tech giants are stalling new hiring and firing employees amid the slowdown.

Alibaba Bolstering Presence Outside China

To minimize the impact of a slowing economy, Alibaba is taking steps to strengthen its position outside China. The company has been looking to international markets to expand its business operations.

Alibaba signed an agreement with the Belgium government to establish an e-commerce trade hub under the Electronic World Trade Platform (eWTP) initiative in December. The move will aid the company in international expansion. Also, it is expected to expand Alibaba’s operations in Europe, increase e-commerce activities and gain greater logistics efficiency.

In September, Alibaba’s AliExpress entered into a strategic partnership with Mail.Ru Group, a Russia-based Internet company, to form a social commerce joint venture. This is in sync with the company’s efforts to bolster presence in the Russian e-commerce space.

Alibaba Group Holding Limited Price and Consensus

Zacks Rank & Stock to Consider

Currently, Alibaba carries a Zacks Rank #3 (Hold).

A better-ranked stock in the broader computer and technology sector is Twitter, Inc. TWTR, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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