Alibaba posts 42 per cent gain in quarterly revenue, defying slowdown in China

Zen Soo

Alibaba Group Holding beat estimates to report a 42 per cent revenue increase in the quarter ended June 30 amid signs of strain in China’s economy from the protracted trade war with the US.

New York-listed Alibaba on Thursday posted better-than-expected revenue of 114.9 billion yuan (US$16.7 billion) in its fiscal first quarter, up from 80.9 billion yuan a year ago, driven by an increase in annual active customers on its China retail platforms. Net income jumped 145 per cent to 21.3 billion yuan in the same quarter.

“Alibaba had a great quarter, expanding our user base to 674 million annual active consumers, demonstrating our superior user experience,” said Daniel Zhang Yong, chief executive of Alibaba, in a statement. “With strong cash flow from our core commerce business, we will continue to invest in technology and bring digital transformation to millions of businesses globally.”

The e-commerce giant’s financial results are seen by many investors as a proxy for consumer spending in China and an important barometer of its economic health. Most of the company’s revenue is generated from its home market, which allows it to be fairly insulated from disruptions in international trade.

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Alibaba’s revenue growth for the quarter comes as China’s online retail sales jumped 16.8 per cent in the first seven months of this year, according to data from the National Bureau of Statistics.

Online shopping now accounts for more 20 per cent of China’s total retail market, driven by the growing number of e-commerce users across the country, according to a report released in June by the Chinese Academy of Social Sciences.

JD.com, the Beijing-based rival of Alibaba, earlier this week also beat estimates to post better-than-expected revenue for the quarter ended June 30, boosted by stronger sales in its online retail business.

Alibaba’s stock is up almost 19 per cent since the beginning of the year. The company’s share price closed down 1.2 per cent to US$162.06 on Wednesday, a day before its latest quarterly results announcement.

Hangzhou-based Alibaba, the parent company of the South China Morning Post, has been ramping up efforts to acquire more users on its Tmall and Taobao Marketplace platforms across China’s smaller cities and rural areas. Increased consumption in lower-tier cities and rural areas is widely expected to become the next engine of growth for the world’s second largest economy.

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In a conference call on Thursday, Zhang said Alibaba’s quarterly revenue growth outpaced its industry peers “even though we adopted a conservative approach in monetisation to support SMEs in this uncertain [economic] environment”.

“We estimate that over half of the total addressable population in less developed areas are already consumers in Alibaba’s digital economy,” he said.

Alibaba reported a 44 per cent increase in its total core commerce segments – including China and international retail operations as well Caniao logistics and local consumer services – to 99.5 billion yuan in the quarter ended June 30. More than 70 per cent of the increase in annual active consumers during the period came from the country’s less-developed areas.

“Taobao Marketplace is very well positioned to capture the consumption demand from the lower-tier cities,” said Joseph Tsai, executive vice-chairman at Alibaba, in the same conference call.

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Revenue in local consumer services, which is led by on-demand platform Ele.me, recorded the highest year on year growth among all of Alibaba’s business segments, surging 137 per cent last quarter to 6.2 billion yuan.

“We remain focused on penetrating into less developed areas for our food delivery business, which we believe will add long term value for Alibaba’s digital economy,” said Maggie Wu Wei, chief financial officer, in the conference call. She said the company has adopted a “more targeted and disciplined approach” in expanding market share for Ele.me, which competes against Meituan Dianping in local services.

Alibaba’s fast-developing cloud computing business saw revenue grow 66 per cent to 7.8 billion yuan last quarter, primarily driven by an increase in average revenue per customer. The company’s Alibaba Cloud subsidiary provides proprietary technologies, such as artificial intelligence applications, data analytics and software, and development operations tools for various industries.

Tsai said the commercial availability of 5G mobile services across China will potentially benefit Alibaba’s cloud computing business, but added this development was in the “early innings” at this stage.

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