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Alibaba Unapologetic on Spending to Drive Growth

The e-commerce giant has been spending more as it expands into new areas and abroad.
Alibaba Group headquarters | Source: Courtesy
By
  • Bloomberg

HANGZHOU, China — Alibaba Group Holding Ltd. is forecasting a better-than-expected 60 percent surge in revenue this year, counting on an international expansion and new businesses from cloud computing to supermarkets to sustain a sizzling pace of top-line growth.

The e-commerce giant’s outlook for the year ending March outstripped projections for growth of 42 percent, and came after it reported quarterly results that also beat estimates. Revenue rose 61 percent to 61.9 billion yuan ($9.7 billion) in the three months ended March, compared with the 59 billion-yuan average estimate. Its shares rose more than 4 percent in pre-market trading in New York.

Net income fell 29 percent as spending ballooned. Alibaba’s been improving on advertising formats for merchants who sell on its platform, investing in cloud computing, buying and revamping grocers and shopping malls and expanding overseas. The company’s taking full control of food delivery platform Ele.me and Southeast Asian e-commerce site Lazada Group SA. That’s bolstering revenue growth even as its core business matures, but its operating margin consequently slid to 15 percent in the March quarter from 25 percent a year earlier.

“Alibaba is offering more value to merchants through effective and efficient ads that leverage all the user data it collects,” UBS Group AG analysts led by Jerry Liu wrote in a research note ahead of the earnings. “The core China e-commerce business remains strong.”

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Shares of Alibaba have gained 5.8 percent this year compared with a 3.3 percent decline for the NYSE Composite Index.

The company's deals are part of billionaire Chairman Jack Ma's ambition to revamp a $4 trillion retail sector, a vision echoed by Amazon.com Inc.'s Jeff Bezos via the acquisition of Whole Foods Market Inc. Arch-foe Tencent Holdings Ltd. has also invested in a slew of supermarkets and retailers in recent months.

Alibaba said in April it would seek full control of Ele.me, conferring a value of $9.5 billion on a company now at the forefront of a battle with Tencent-backed Meituan Dianping. Both are expanding into local and neighborhood services and heavily subsidizing restaurant deliveries.

Alibaba is predicting revenue growth of 50 percent in the current year if newer businesses such as Cainiao and Ele.me were to be excluded — still handily beating estimates. In the March quarter, sales from core commerce rose 62 percent to 51.3 billion yuan while cloud unit revenue more than doubled to 4.4 billion yuan. The digital media and entertainment unit boosted sales 34 percent to 5.3 billion yuan. It reported adjusted earnings per share of 5.73 yuan versus the 5.5 yuan average estimate.

By Lulu Yilun Chen; editors: Robert Fenner and Edwin Chan.

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