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Alibaba Shrugs Off Slowing Chinese Economy as Revenue Surges

Alibaba Shrugs Off Slowing Chinese Economy as Revenue Surges

By Lulu Yilun Chen, Bloomberg | Updated: 3 November 2016 10:31 IST

Highlights

Revenue rose 55 percent to CNY 34.3 billion (roughly Rs. 33,833 crores)
Alibaba is now moving into untapped rural markets
The company will remain dependent on Chinese consumers

Alibaba Group Holding showed once again that a slowing Chinese economy isn't holding it back.

The country's largest operator of internet shopping malls posted sales and earnings that beat analyst estimates as revenue easily outstripped economic growth. Moreover, Alibaba's fledgling cloud computing business more than doubled sales and almost broke even, a significant feat for a capital-intensive business.

The results come about a week before Katy Perry kicks off Alibaba's annual Singles' Day event, the world's biggest 24-hour shopping promotion and a closely watched barometer of Chinese consumer health. Alibaba continues to capture a greater share of digital advertising as users shift to mobile devices and marketers spend more money online to reach them.

"I don't know if anyone's doing better than Alibaba," said Gil Luria, an analyst at Wedbush Securities Inc., commenting on Chinese internet companies. "They were able to drive growth by expanding beyond e-commerce in mobile browsing, media, cloud and continued to increase their number of ads and the money they charge for it."

Revenue rose 55 percent to CNY 34.3 billion ($5.1 billion or roughly Rs. 33,833 crores) in the quarter, surpassing the CNY 33.9 billion expected by analysts. Alibaba's quarterly sales have now beaten estimates for five straight quarters and have missed only twice since its record IPO in 2014.

Shares of Alibaba rose as much as 2.7 percent in early trade Wednesday. The stock has gained about 24 percent after a 22-percent dive in 2015, when the company grappled with the slowdown and lawsuits accusing it of being slow to remove counterfeits from its websites.

While core commerce revenue rose 41 percent to CNY 28.5 billion in the September quarter, the cloud unit was the star performer. The division, which competes with Microsoft and Amazon.com, grew sales 130 percent and narrowed its loss to CNY 57 million after more than doubling the number of paying customers to 651,000.

"At this growth rate, Alibaba's cloud unit could break even as soon as next quarter," said Li Muzhi, a Hong Kong-based analyst at Arete Research Services LLP. "The company's ability to make money from advertisers on its core e-commerce platforms has also improved."

Ever-increasing investments, which also include shelling out on digital video and music, contributed to a steep 66 percent dive in quarterly net income to CNY 7.6 billion. That beat estimates for 7 billion yuan. The company had almost CNY 104 billion of cash and cash equivalents as of the end of September.

While Alibaba has outperformed expectations this year, investors remain concerned about a further deceleration in China's economy as rivals such as Tencent Holdings Ltd. step up efforts to capture digital ad spending.

Alibaba is now moving into untapped rural markets, exploring areas abroad and investing in new sources of income such as online media. The company has developed a news feed platform, which it monetizes via advertising.

The company bought Youku Tudou to expand into online video streaming and Lazada to gain a foothold in Southeast Asia. Chairman Jack Ma is complementing his datacenters drive with a push into entertainment, getting deeper into the movie and video streaming business. Sales from the digital media and entertainment division quadrupled to CNY 3.6 billion.

"Alibaba is managing the expansion into non e-commerce business well because of the high margins in its core e-commerce business," said Luria.

Most of those new businesses are years away from contributing to the bottom line. Alibaba will remain dependent on Chinese consumers - and their trillions of dollars in household savings - till then.

"We think significant growth is sustainable into the future," Vice Chairman Joseph Tsai said on a call with analysts."We see tremendous opportunities for us to increase monetization of our user base, this is because user engagement of our platform is growing and this generates strong value for branding and distribution."

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