Alibaba tops revenue forecasts as investments clip margins

Alibaba Group Holding Ltd reported better than expected top line results on Friday, driven by strong sales in its commerce and cloud computing units, even as margins were squeezed by flurry of investments.

The company’s March-quarter revenue grew 61 percent to 61.9 billion yuan ($9.73 billion) from a year earlier, beating analyst estimates of a 53 percent increase.

The results mark two years of continuous quarterly revenue growth above 50 percent for Alibaba, even as new business investments in offline retail, cloud computing and overseas expansion continue to weigh on margins.

Alibaba’s operating margin for the quarter was 15 percent, down from 25 percent a year earlier.
The internet giant announced in March that it will invest an additional $2 billion in Southeast Asian e-commerce firm Lazada Group, adding to a run of recent investments in China including brick-and-mortar stores, microchips and logistics.

The spending comes as Alibaba faces increased competition from Chinese rival JD.com Inc, which has partnered with social media and gaming giant Tencent Holdings Ltd on offline retail, marketing and payments.

During a conference call with analysts, Chief Executive Daniel Zhang said the firm “will continue to invest aggressively” with a goal of surpassing $1 trillion in gross merchandise volume (GMV) by 2020.
Alibaba’s core commerce business grew 62 percent year on year to 51.3 billion yuan, while its cloud computing business grew 103 percent to 4.4 billion yuan, buoyed by new overseas data centers.

It also forecast a strong revenue increase of 60 percent for the year to March 31, 2019, versus 58 percent in 2017-18.

Last quarter Alibaba announced it will acquire a one-third stake in payment affiliate Ant Financial, replacing an earlier profit share agreement, under which Ant paid royalty fees to Alibaba equivalent to 37.5 percent of its pre-tax profits.

The deal, which is expected to close in the second half of 2018, is likely to tamp profit in the short term as the payments company invests heavily to stave off competition in the Chinese market.

Alibaba’s net income attributable to shareholders was 7.6 billion yuan in January-March, down 29 percent from the same quarter in 2017. The drop was due in part to gains from the sale investments during the same quarter in 2017, the company said.

The company posted 61.9 billion yuan ($9.73 billion) in revenue for January-March, versus an average estimate of 58.9 billion yuan from 23 analysts polled by Thomson Reuters I/B/E/S.

March quarter sales are seasonally slow for Alibaba following its bumper sale event, Singles’ Day, in November. Sales for the period were also affected by fewer working days due to the Chinese New Year holidays.