Alibaba is capitalizing on the liquidity of households and expanding into rural areas, helping limit the impact of China growing at the slowest pace in 25 years
Hong Kong: Alibaba Group Holding Ltd. posted a 39% surge in revenue as China’s dominant e-commerce operator shrugged off a slowing economy with promotions to woo cash-rich consumers.
Asia’s largest Internet company posted better-than-expected sales of 24.2 billion yuan ($3.7 billion) in the March quarter and said it will start providing annual forecasts. Its shares rose 5.3% in pre-market trading.
Alibaba, often regarded as a proxy for Chinese consumer spending, is capitalizing on the liquidity of households and expanding into rural areas, helping limit the impact of an economy growing at the slowest pace in 25 years. The company’s platforms, which link buyers and sellers, hit a 3 trillion-yuan milestone of goods sold during the period and the online emporium made more from mobile advertising and expanded overseas.
“Alibaba is still growing very nicely and sustaining very high margins in the face of the concerns about Chinese consumers and the face of competition,” said Gil Luria, an analyst with Wedbush Securities Inc. “It’s good results for Alibaba and it seems like their business is holding up.”
Spending weighs
Net income rose 855 to 5.3 billion yuan, just shy of the 5.4 billion-yuan average of estimates. Affiliate Zhejiang Ant Small & Micro Financial Services Group, which owns Alipay, incurred a net loss after spending to drive user growth. Adjusted earnings-per-share were 3.02 yuan, trailing analysts’ projections for 3.52 yuan.
The marketing push helped spur a 21% jump in active users to 423 million. That in turn underpinned a 41% jump in revenue on Alibaba’s Chinese retail e-commerce platforms. Mobile shopping on local retail sites almost tripled and now accounts for 63% of sales.
Vice chairman Joseph Tsai highlighted the $4.6 trillion of net cash reserves held by Chinese households as a key driver of ongoing spending and growth at Alibaba. After free cash flow reached $8 billion last year, he has pledged to keep investing to pursue growth—despite the potential drag on the bottom line.
“Going forward we are prepared to continue investing in high-potential businesses that are highly strategic to Alibaba, from digital entertainment to local services to international expansion,” Tsai said on Alibaba’s blog Thursday. “These businesses contribute to losses in our current income statement.”
New businesses
Alibaba expects last month’s $1 billion deal for control of Lazada Group SA, which gives it access to six Southeast Asian markets, will help Chinese merchants expand sales in the region.
“Lazada is a very important acquisition, Lazada has a very great brand recognition,” chief executive officer Daniel Zhang said. “This is a good vehicle for us to expand to this area.”
Alibaba has also expanded into on-demand services and entertainment, areas that have shown promise but aren’t expected to yield much profit for now. Its cloud computing business almost tripled revenue to more than 1 billion yuan in the quarter, has more than half a million paying customers and is close to breaking even.
Rural push
The company has also pulled out the stops to get its platforms in front of villagers, setting up free Internet-equipped computers and working with local officials to train potential buyers and sellers. It had a presence in 14,000 villages across the country by the end of March, out of about 600,000. That effort to diversify comes as Alibaba is trying to tap more of the 620 million Chinese who access the Internet from their smartphones and tablets.
“Advertisers are finding efficacy on the Alibaba platforms and they’re putting more money in, that’s a big driver,” said Rob Sanderson, an analyst at MKM Partners LLC. “If you’re an investor that wants them to harvest the assets for near term cash generation, then you should find a different stock, because that’s not what this is.”
Tsai said the company isn’t involved in shareholder Yahoo! Inc.’s potential sale of its core business.
“If they sell the core business, then they’ll continue to be a company that would continue to be a 15% shareholder in our company so nothing will change,” he said.
