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Did China Just Plow Alibaba’s Corn Field for Free?

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China’s nearly $500 billion tax cut could reward Alibaba

Early this month, China announced a nearly $300 billion cut in taxes and fees for businesses in the country, part of an effort to shore up its economy, which has been slowing in recent times. China’s latest tax cut is on top of the nearly $200 million tax relief program it launched last year, according to a report from the Nikkei Asian Review. China’s bet is that the tax cuts will spur spending, thereby bolstering its economy. For Chinese Internet companies such as Alibaba (BABA), the tax cuts could be a huge boost.

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Businesses using tax savings on advertising and discounts

For Alibaba in particular, the tax cuts could spur spending on its advertising services by businesses seeking to boost sales during these challenging economic times. Alibaba, whose marketplaces reach almost 640 million consumers across China, is one of the top digital advertising platforms in China.

Chinese companies could also use their tax savings to fund discounts for their products on Alibaba marketplaces such as Taobao and Tmall in order to drive sales, thereby netting the company more transaction revenue.

Revenue rose 41% at Alibaba

Alibaba generated $17.1 billion in revenue in its fiscal third quarter, which ended in December, representing an increase of 41% YoY. Shopify (SHOP), JD.com (JD), and Amazon (AMZN) recorded revenue growth of 54.3%, 22%, and 20% YoY, respectively, in the December quarter. Revenue rose 6.0% YoY for eBay (EBAY) in the December quarter.

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