Alibaba’s outlook tops estimates as spending drives growth

HONG KONG • Alibaba Group Holding Ltd predicted a surprise acceleration of sales as the Chinese e-commerce giant unleashes spending to sustain growth in cloud computing, logistics and supermarkets.

The company expects revenue to surge 60% in the year ending March, boosted by its purchase of food delivery start-up and transport business Cainiao. Even without those acquisitions, Alibaba sees sales rising 50%, ahead of the 42% projected by analysts.

Billionaire founder Jack Ma’s deal spree is taking the Hangzhou-based company into more of the offline world, giving it a logistics business, a chain of supermarkets and a fleet of couriers bringing meals to the front doors of users. While that’s helped make Alibaba less reliant on the Chinese online marketplaces that generate most of its sales, it has come at a cost, with its operating margin shrinking 10 percentage points in the March quarter.

Last Friday, executives emphasised they’ll continue to spend to grow market share and keep growth humming — potentially at the expense of profitability.

“The results were very strong, it was much better than people were expecting,” said Julia Pan, a Shanghai-based analyst at UOB

Kay Hian Investment Consulting (Shanghai) Co Ltd. “People might be less concerned about the margin compression now because of Alibaba’s better than expected top-line guidance.”

The US-traded shares rose 1.7% to US$185.55 at 11:43am in New York last Friday.

Alibaba also reported fourth-quarter (4Q) sales and earnings that topped estimates. Revenue rose 61% to 61.9 billion yuan (RM37.14 billion) in the three months ended March, compared to the 59 billion yuan average estimate. Net income fell 29% as spending ballooned.

“The margin structure is completely different, its quality of earnings is dropping,” said Steven Zhu, an analyst with Pacific Epoch. And “its core business is going through deceleration”.

The company’s deals are part of Ma’s ambition to revamp a US$4 trillion (RM16 trillion) retail sector, a vision echoed by 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. But, Alibaba last Friday signalled its willingness to beat rivals back. “We’re going to be extremely competitive,” vice chairman Joseph Tsai said on a conference call.

Alibaba has been pushing to revamp brick-and-mortar retailing with technology, bringing its skills in ordering, marketing and fulfilment to supermarkets and other stores in China. It’s also taking renewed steps overseas by taking control of Lazada Group SA to provide an e-commerce platform across South-East Asia. The company plans to keep spending as it seeks to fend off Inc, which is backed by Tencent.

In the March quarter, sales from core commerce rose 62% 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% to 5.3 billion yuan. It reported adjusted earnings per share of 5.73 yuan versus the 5.5 yuan average estimate.

“New Retail, Cainiao, Lazada, — we’re going to continue to expand our business by investing,” CFO Maggie Wu said. “Having this New Retail kick in and becoming more important, our margin structure may shift.” — Bloomberg