Alibaba beats forecast with 56pc jump in sales, helped by growth in e-commerce, cloud computing
Shares of the company rose 1.1 per cent in New York before earnings were announced to a record US$159.50, giving Alibaba US$408.5 billion in market capitalisation as Asia’s most valuable company.
Alibaba Group Holding beat analysts’ forecasts and posted a 56 per cent jump in its first-quarter revenue, helped by sales growth in cloud computing and its business operating the largest online shopping platforms on the planet.
Sales rose to 50.2 billion yuan (US$7.5 billion) in its first quarter ended June, surpassing the 47.9 billion yuan consensus estimate in a Bloomberg survey. Net profit jumped 96 per cent to 14 billion yuan during the period.
The bulk of the Hangzhou-based company’s revenue came from its core e-commerce business, including the online shopping platforms Taobao, Tmall, and its international business units like AliExpress and Lazada in Southeast Asia, where sales rose 58 per cent to 43 billion yuan from last year.
“The robust revenue growth in our core commerce business is driven by our continuous innovation in data technology, improvements in algorithms and widespread application of big data,” said Daniel Zhang Yong, Alibaba’s chief executive, in an earnings call with analysts and journalists.
Alibaba, which also owns the South China Morning Post, earns revenue from e-commerce by offering paying merchants consumer insights and advertising options to better target and engage customers.
As many as 529 million people use the Taobao shopping app on their smartphones every month, an increase of 4.3 per cent from March this year, Alibaba said.
Tmall, Alibaba’s business-to-consumer (B2C) retail platform, recorded 49 per cent growth in physical goods transactions this quarter, compared to the same period last year. Strong categories included consumer electronics, fashion, apparel and fast moving consumer goods, such as food and toiletries.
While Alibaba’s growth in the B2C space remained robust, Steven Zhu, an analyst with investment research firm Pacific Epoch, cautioned that rival online retailer JD.com’s B2C platform could post a threat for Tmall as the latter has expanded its product categories to compete with Alibaba.
“JD.com’s market share continues to increase [in the B2C space] ... and they are eroding market share from Tmall,” said Zhu. “That’s a threat that Alibaba will have to face in the future. These businesses are competing for the same consumers in the same product categories.”
Alibaba has started to focus on the offline market since 2015, investing more than US$8 billion in brick-and-mortar retailers such as in the Chinese electronics chain Suning, department store chain Intime Retail Group and supermarket chains Lianhua and Sanjiang. It believes that its big data and technological prowess can help integrate both online and offline retail spheres into a new way of doing business.
Since 2015, Alibaba has launched 13 Hema Supermarkets, which offer what founder Jack Ma Yun calls a “new retail experience” with both online and offline shopping features.
Users can shop from the comfort of their homes with direct delivery, by linking their Hema mobile app to Alipay, the electronic payment system operated by an Alibaba affiliate. Consumers can also choose to dine directly at Hema by picking out fresh groceries or seafood and have in-house chefs prepare a meal for them.
The company, whose stock has been listed in New York since 2014, also operates one of Asia’s largest cloud computing business. Revenue from cloud computing grew 96 per cent to 2.4 billion yuan during the quarter from last year, with more than 1 million customers.
Revenue in Alibaba’s digital media and entertainment businesses grew 30 per cent to 4 billion yuan, a slower pace compared with the 234 per cent surge in the previous quarter. Contributions came from value-added services such as news feeds and mobile search contributed by its browser service UCWeb. Still, the segment continued to be unprofitable, losing 3.4 billion yuan in the quarter as Alibaba continued to invest in content on video platform Youku Tudou to spur growth in users and subscriptions.
“Compared to previous quarters, there was an increase in negative margins primarily due to an increase in content cost for Youku Tudou in the second half of fiscal 2017,” said Alibaba chief financial officer Maggie Wu. “We will continue to increase our competitive position in digital entertainment through a combination of licensed and premium content, as well as self-produced and jointly-produced programming.”
Internationally, the company is also expanding into Southeast Asia, investing another US$1 billion into Singapore-based e-commerce retailer Lazada in June, taking its total investment in the retailer to US$2 billion. It now has a stake of about 83 per cent in Lazada, which is valued at about US$3.15 billion.
Alibaba’s shares rose 1.1 per cent on Wednesday in New York trading before earnings were announced, rising to a record US$159.50 each, giving the company US$408.5 billion in market capitalisation as Asia’s most valuable company.