Alibaba boosts sales forecast as consumer spending booms in China,
Biggest e-commerce company in China benefitted from record Nov. 11 spending spree
Alibaba Group Holding raised its full-year sales forecast Tuesday after quarterly results beat estimates, as Chinese spending stays strong and the company wrings revenue from fledgling areas such as cloud computing, entertainment and search.
China’s biggest e-commerce company increased its projection for fiscal 2017 revenue growth to 53 per cent, from 48 per cent previously. That may help assuage investors concerned that a deceleration in the world’s second-largest economy is curtailing Alibaba’s main online commerce business.
Despite a fairly stagnant user base of about 443 million, Alibaba benefited from a record Nov. 11 Singles’ Day spending spree, and gained a larger share of online advertising from rivals such as Baidu Inc. It also more than doubled sales from cloud computing in the December quarter. As transaction growth slows, Alibaba is generating more revenue from merchants by selling them services to draw in buyers, and expanding its Netflix-like entertainment arm.
The company, which gets most of its revenue from its home market, wants to accelerate its globalization this year, chief executive officer Daniel Zhang told analysts on a conference call.
Other priorities include pushing deeper into rural China, and pitting its burgeoning cloud business against the likes of Amazon.com and Microsoft. It’s also spending enormous amounts to acquire Hollywood content to power its loss-making digital media division. Zhang however said the bleeding will slow as more paying customers come on board, given their ability to convert shoppers into viewers.
“Digital content will make up an increasingly large proportion of total consumption volume of young consumers,” Zhang said.
Group sales rose 54 per cent to 53.2 billion yuan ($7.8 billion) in the December quarter, topping the 50.1 billion yuan expected by analysts. Adjusted earnings-per-share came to 9.02 yuan, compared with estimates for 7.70 yuan. Net income climbed 38 per cent to 17.2 billion yuan, outstripping the 13.6-billion-yuan average of estimates compiled by Bloomberg.
Chinese retail e-commerce reve- nue jumped 42 per cent to 40.8 billion yuan in the quarter, driven by demand for the marketing services that merchants pay for. About 80 per cent of that came from mobile platforms, where sales climbed 73 per cent. Chief financial officer Maggie Wu said the company’s active buyer base could surpass 500 million.
The number of annual active buyers grew 9 per cent from a year earli- er, while mobile monthly active users increased 25 per cent.
That discrepancy in growth is a sign that Alibaba is now becoming “increasingly seen as a platform for users to spend time as opposed to just shop,” said James Cordwell, an analyst at Atlantic Equities.
“That’s good for Alibaba for ad revenue, but for merchants on Alibaba, they want to be selling items. There does seem to be a slight difference of objective between Alibaba and its merchant base, which does raise a few concerns.”
Alibaba is now also expanding into traditional retail, experimenting with technology to revamp a fragmented $4.8-trillion market. This month, it unveiled a $2.6-billion deal to take control of mall operator Intime Retail Group Co., thus gaining a “full-scale” laboratory in which it can test ideas for merging the worlds of physical and online retail, Zhang said.
For now, the company still derives most of its business from its home market. But Alibaba is aiming to attract a million small businesses in the U.S. onto its platform within five years, hoping those entities will create one new job each. The initiative was brought up by chairman Jack Ma in a meeting with Donald Trump in January, as a means to display goodwill after the online emporium was again labelled a “notorious market” awash in counterfeits by the U.S. trade representative.
Ma said as early as in 2015 that the company wants more than 50 per cent of revenue from outside of China. He also said in January last year he wanted to serve 10 million small businesses abroad.
That international drive entails spending on marketing.