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Financial Times

Alibaba sales rise on Chinese ecommerce boom

August 17, 2017

By Louise Lucas

Online retailer also posts strong revenue growth in cloud computing and digital entertainment

Alibaba reported a near doubling in net income to just over $2bn in its first fiscal quarter, beating analyst expectations as the boom in Chinese online shopping shows little sign of slowing.

The Chinese ecommerce group said that revenues rose 56 per cent to $7.4bn in the three months to the end of June, keeping the company easily ahead of the bullish guidance released in June for full-year sales to rise by 45 to 49 per cent.

Shares in Alibaba have risen more than 70 per cent this year, taking its market capitalisation to above $400bn.

Unlike some of its tech-focused peers, which have also seen share price surges, Alibaba managed to lift its operating margins in the period, from 27 per cent a year ago to 35 per cent in the latest quarter.

The company benefited from strong growth in its core ecommerce business, riding the boom of Chinese online shopping. Newer businesses are also expanding fast: cloud revenues doubled to $359m and it now boasts more 1m paying customers.

However, the cloud division, like its digital entertainment business, made an even bigger operating loss in the latest quarter than in the year ago period.

Maggie Wu, chief financial officer, stressed that Alibaba would continue to reinvest in its businesses to keep users coming back to the platform.

The leap in revenues, far surpassing analysts’ estimates, was partly attributed to technology advances, introduced in September last year, that improve personalisation of pages seen by shoppers. As the impact of that diminished this quarter, Ms Wu said, revenue growth would return to more normalised levels.

Steven Zhu, analyst at Pacific Epoch in Shanghai, said the improved technology — which means shoppers see only relevant items — was similar to that of Amazon, the US-based ecommerce group.

“But what’s different with Alibaba is they have a huge customer base using their platforms and they have access to all the transactions on [platforms] Taobao and Tmall,” he said.

Mobile monthly active users rose by 22m to 529m.

“This company has so many levers to hit the numbers,” said Mitchell Green, managing partner at Lead Edge Capital and a long-time owner of the stock, pointing to scope for more ads and tools to sell to merchants.

Alibaba has come under pressure for fake goods sold on its sites, and remains under investigation by the Securities and Exchange Commission in the US over some of its accounting treatment.

On Thursday it became the latest company to feel Beijing’s tightening crackdown on the internet sector — a move that has also hit fellow tech companies Tencent and Sina Weibo.

Alibaba was warned by China’s top cyberspace regulator against carrying illicit content, substances and tools to help users circumvent the nation’s internet content barriers — specifically recently banned VPN tokens.

View original article at Financial Times