Alibaba soars after investing in avenues other than e-commerce
Alibaba’s ramping up spending in new arenas as it reduces its reliance on an online retail business facing more competition by JD.com and Pinduoduo
Hong Kong — Alibaba reported its fastest pace of growth in more than four years, as the e-commerce giant’s investments in arenas from cloud computing to entertainment carved out new avenues of income.
Revenue at China’s biggest e-commerce company climbed 61% to 80.9-billion yuan ($11.8bn) in the three months ended June, matching the average of analysts’ estimates. Net income slid 41% to 8.7-billion yuan, topping the 7.6-billion yuan projected after taking into account an increase in the valuation of affiliate Ant Financial, which boosted the expense of shares awarded to employees.
Alibaba’s ramping up spending in new arenas as it reduces its reliance on an online retail business facing increased competition from JD.com and Pinduoduo as well as a broader economic slowdown. It’s been busy expanding its Hema supermarket chain, acquiring food delivery network Ele.me and video streaming site Youku. But that spending is hurting margins: adjusted earnings per share came in at 8.04 yuan, short of the 8.19 yuan estimate.
Much of Alibaba’s cash is flowing into China’s $1.3-trillion food retail and services industry, where it’s trying to hold its own against delivery giant and super-app Meituan Dianping. Alibaba said on Thursday that Ele.me had raised more than $3bn in a new financing round led by SoftBank. Alibaba now intends to merge Ele.me with Koubei, another unit focused on connecting restaurants to the internet.
"We remain confident on the company’s revenue growth given its diversified product offerings," Mae Huang, an analyst at SWS Research said in a report. "Despite the short-term costs incurred by the company, we believe Alibaba is building a stronger ecosystem."
Shares of Alibaba were up about 4% in pre-market trade, after ending largely unchanged in New York ahead of the results. The stock had gained 3% in 2018 compared with a 1.4% gain for the NYSE Composite Index.
Founder Jack Ma is also making an expensive foray into the $4-trillion retail sector. Alibaba acquired a department store chain with 29 stores and 17 shopping malls in 2017 and also bought a slice of China’s largest hypermarket chain.
It’s been shelling out on content to stay abreast of Tencent and Baidu in the video-streaming business. Heavy investments in data centres for its cloud computing arm helped almost double revenue in that division to 4.7-billion yuan.