Alibaba Reaps Growth From Jack Ma’s Push Into Media, Cloud

Alibaba's Tsai: Revenue Growing at Fastest Rate Since IPO
  • Core online shopping business holds up despite weak economy
  • Cloud computing, media & entertainment division revenue surges

Jack Ma’s diversification strategy is starting to pay off as revenue at Alibaba Group Holding Ltd. accelerates to the fastest since its record initial public offering.

Streaming entertainment and cloud computing bolstered a resilient e-commerce business, driving revenue up 59 percent in the June quarter, beating analyst estimates. The results drove the stock up as much as 6.2 percent to $92.77 in New York, the most in more than three months.

Chairman Ma has spent billions of dollars buying video website Youku Tudou, Southeast Asian e-commerce company Lazada Group SA and web browser UCWeb to make Alibaba less dependent on a slowing domestic economy. That has combined with a push into cloud computing to generate new growth for a company that dominates online shopping in China, and is cashing in on the country’s shift toward services from heavy industry.

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“This quarter’s performance lifts investors doubt about its ability to maintain growth in its core e-commerce business,” said Li Muzhi, a Hong Kong-based analyst at Arete Research Services LLP. “The business diversification in digital entertainment and cloud is icing on the cake.”

Sales for the quarter were 32.15 billion yuan ($4.8 billion) compared with the 30.2 billion-yuan average of estimates compiled by Bloomberg. Net income was 7.1 billion yuan, also beating expectations. The company’s annual active buyers increased 18 percent to 434 million. Adjusted earnings-per-share were 4.90 yuan.

Alibaba’s main shopping service -- the Taobao online marketplace -- was still finding favor among the younger users crucial to engagement. Three quarters of the service’s users were under the age of 35, Vice Chairman Joseph Tsai told analysts on a call.

Alibaba Vice Chairman Joseph Tsai discusses the company’s earnings and performance on "Bloomberg ‹GO›."

Source: Bloomberg)

Growth in users drove a 47 percent rise in revenue for the core commerce business to 27.2 billion yuan. The division posted adjusted earnings before interest, tax and amortization of 16.6 billion yuan.

Still, Chinese retail e-commerce accounted for just 73 percent of Alibaba’s revenue, as Ma pursues a goal of getting half of sales from outside the country and in new sectors. And the company’s willing to spend to get there.

“While the other companies are talking about a billion investment, we are willing to invest multi times of that number,” Chief Financial Officer Maggie Wu said.

The quarterly report is the first in which Alibaba has broken out earnings into division segments. The move toward more financial transparency comes after it disclosed in May an investigation by the U.S. Securities and Exchange Commission into the company’s accounting practices.

As with Amazon.com Inc., Alibaba is positioning cloud computing as one of its faster-growing businesses, eyeing top share in Japan in two years and beefing up its presence in the Middle East and U.S. The cloud unit increased its base of paying customers to 577,000, driving a 156 percent leap in revenue. The division also more than halved its losses, and executives said it was now approaching break-even.

“Our results show the scale and leverage of our ecosystem, as we strengthen our competitive positions in core commerce, cloud computing and digital media and entertainment,” Chief Executive Officer Daniel Zhang said.

Revenue from media and entertainment almost quadrupled to 3.1 billion yuan while the innovation initiatives business, which includes its operating system and mapping service, posted a 30 percent jump. But losses from entertainment almost doubled as Alibaba spent more on content to lure customers to Youku Tudou and its fledgling over-the-top TV service.

International retail commerce revenue more than doubled on account of Lazada, which granted Alibaba access to major Southeast Asian markets. 

Lazada, which at $1 billion is the company’s biggest overseas acquisition, was included in earnings for the first time and is expected to become a linchpin of Alibaba’s global expansion. The company on Thursday affirmed its target of 48 percent growth in full-year revenue.

“Alibaba’s business has gone far beyond its original e-commerce business and evolved into a sophisticated ecosystem with far-reaching penetration into Chinese consumers’ day-to-day life,” Jefferies & Co. analysts led by Jessie Guo wrote before earnings were released.

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