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Alibaba rallies on handsome profit beat, optimistic commentary

Gross merchandise volume - a key metric - grew at a solid 29 per cent.

Jan 31, 2019, 11.50 AM IST
The logo of Alibaba Group is seen at the company's headquarters in Hangzhou
Alibaba's Chief Executive Daniel Zhang said the company remains optimistic despite facing uncertainties, adding that younger buyers were driving sales.
SHANGHAI: E-commerce giant Alibaba Group Holding reported quarterly profit far above market expectations and played down worries of Chinese economic slowdown and US tariff effects, sending its shares up 6 per cent.

While quarterly revenue grew at its weakest pace since 2016 and modestly missed estimates, gross merchandise volume (GMV) - a key metric - grew at a solid 29 per cent and the company's budding cloud business continued to show promise.

Tech investors have fretted over the impact of a slowing Chinese economy and a crippling Sino-US trade war, which have been blamed for weak results at a slew companies including Apple Inc and chipmakers.

"Concerns about trade tensions might affect sentiment, but Alibaba's exposure to the tangible effects of trade tariffs is small," Alibaba's Executive Vice-Chairman, Joe Tsai, said on a post-earnings call on Wednesday.

"For our businesses in e-commerce, consumer services, entertainment and cloud computing, the primary growth driver is not exports but domestic consumption and corporate transformation."

Alibaba's founder Jack Ma has previously described the China-US trade spat as the "most stupid thing in the world".

The company's results, often seen as a yardstick of consumer spending in the world's second-largest economy, are likely to ease some worries.

Alibaba, the second-most valuable public company in Asia after Tencent, posted on Wednesday third-quarter profit of 33.05 billion yuan ($4.92 billion), up 37 per cent from a year earlier. This compares against an estimate of 21.28 billion yuan, according to I/B/E/S estimates from Refinitiv.

Revenue jumped 41 per cent to 117.28 billion yuan, compared with an estimate of 118.9 billion yuan.

Net income rose 33 per cent to 30.96 billion yuan, however, beating estimates and sending Alibaba's stock up by about 1.6 per cent in pre-market trade.

Alibaba's shares, traded on the New York Stock Exchange, closed up more than 6 per cent on Wednesday. They have slumped 16 per cent in the past 12 months but rallied so far this month.


Alibaba typically posts its highest revenue in the December quarter due to its mega "Singles' Day" in November - the world's biggest online sales event that outstrips the sales of US shopping holidays Black Friday and Cyber Monday combined.

Last year, Alibaba netted a record $30 billion from the Singles' Day. Annual growth, however, dropped to the weakest rate in the event's 10-year history as the Chinese economy grew at its weakest pace in nearly three decades.

Growth is expected to ease further this year.

Anticipating headwinds from economic uncertainty, Alibaba had lowered its revenue outlook for its financial year ending March even before the top sales season.

However, last week, Tsai noted that sales had ticked up in December, though demand for big-ticket items continued to slow.

"The healthy balance sheet of Chinese households and the increasing availability of credit will fuel consumption," Tsai said on Wednesday.

Alibaba's Chief Executive Daniel Zhang said the company remains optimistic despite facing uncertainties, adding that younger buyers were driving sales.

On Tuesday, China's Ministry of Industry and Information Technology said revenue growth rates for domestic technology companies did not rise in 2018, and that consumer spending had slowed amid increased economic pressures.

Given signs of saturation in China's urban market, Alibaba has been trying to grow outside of its core e-commerce business to win new customers.

The company continued to invest heavily in cloud computing, artificial intelligence and online entertainment in the December quarter.

Revenue from its cloud business rose 84 per cent to 6.6 billion yuan while sales from its digital entertainment and media business rose 20 per cent to 6.5 billion yuan.

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