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Alibaba

Alibaba’s second-quarter revenue soars 55pc to 34.3 billion yuan, beating analysts’ forecasts

Revenue at the world’s largest e-commerce company jumps on strong online sales and cloud computing growth

PUBLISHED : Wednesday, 02 November, 2016, 7:08pm
UPDATED : Wednesday, 02 November, 2016, 10:59pm

Alibaba Group Holding’s second-quarter results beat analysts’ forecasts, bolstered by its growth in online shopping and a cloud computing business that is rapidly expanding internationally.

Revenue rose by a larger-than-expected 55 per cent to a record 34.3 billion yuan in the three months to September, the Hangzhou-based company said in a statement. That was higher than the median forecast of 33.9 billion yuan in a Bloomberg poll of analysts.

Its core commerce business, which comprises online retail marketplaces such as Taobao Marketplace and Tmall.com, grew 41 per cent to 28.5 billion yuan.

The company generated 13.9 billion yuan in free cash flow in the quarter, it said.

“The core commerce business [provides] tremendous cash flow for us to make investments in important strategic areas,” Joseph Tsai Chung-hsin,executivevice-chairman of Alibaba, said in a conference call with analysts and journalists.

“We’re extremely patient when it comes to developing potentially high-impact initiatives. We focus on initiatives with long gestation periods. In our experience, the investment cycle for incubating businesses that eventually become massive value drivers could take seven to 10 years.”

He said this pattern was observed with its Taobao marketplace, the AliPay online and mobile payment system and Alibaba Cloud.

Cloud computing is one of the four business segments at Alibaba, which also publishes the South China Morning Post. The other three are core commerce, digital media and entertainment and innovation initiatives.

Its cloud computing arm, Alibaba Cloud, which already hosts a third of China’s websites, is a new contributor to Alibaba’s revenue with almost 1.5 billion yuan during the quarter, more than double from a year earlier. The unit has over 650,000 paying customers.

In our experience, the investment cycle for incubating businesses that eventually become massive value drivers could take seven to 10 years
Joseph Tsai, executive vice-chairman, Alibaba

Although Alibaba said in August that the cloud computing unit was approaching break-even, chief financial officer Maggie Wu emphasised that profitability was “not the top priority” for the business at this point of time.

In October, Alibaba Cloud announced price cuts of up to 50 per cent across its product offerings in a bid to carve out a larger market share in the cloud business.

“The top priority is to keep expanding our market leadership. Therefore, we will continuously make investments to develop our cloud business for rapid expansion,” Wu said.

The entertainment and media business has also generated new growth for the company, representing about 9.5 per cent of the quarterly revenue and tripling from a year earlier to 3.6 billion yuan.

Separately, its innovation initiatives segment, which includes the AutoNavi mobile mapping and navigation software and its recently rebranded Fliggy travel business, saw revenue jump 78 per cent year on year.

The company’s stronger-than-expected revenue numbers came ahead of its Singles’ Day online shopping festival on November 11.

Alibaba’s online retail marketplaces such as Tmall.com and Taobao Marketplace typically offer generous discounts on products to consumers, racking up billions of dollars in sales that make it the world’s biggest online shopping event.

The group reported a record US$14.3 billion in online shopping transactions within 24 hours on November 11 last year. This year’s so-called Singles’ Day extravaganza is likely to be even bigger as the company rolls out a pilot programme to allow consumers in Hong Kong and Taiwan to buy products from global merchants during the festival.

“We want to offer a large variety of daily necessities to the city’s consumers,” chief executive Daniel Zhang said at the launch of the 11.11 Global Shopping Festival in Hong Kong last week.

Shares in Alibaba jumped 3.31 per cent in pre-market trading on Wednesday after closing at US$101.15 on Tuesday in New York. The stock has risen 31.9 per cent so far this year.