Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Much has been said about Alibaba Group Holding Ltd. and the Chinese e-commerce company's continued profit from being a marketplace for counterfeit goods. But a few nuggets from the latest earnings released Tuesday show Jack Ma's empire can probably afford its recent aggressive moves to clamp down on fakes.

Net income for the December quarter climbed 38 percent to 17.2 billion yuan ($2.5 billion), beating estimates by over 30 percent, while the top line grew an impressive 54 percent and also bested expectations. Most of its sales and all of the profit still come from core commerce. 

Yet it's in the newer divisions -- digital media and entertainment, and cloud computing -- where there are real signs of life. In fact, without those two units, Alibaba's revenue growth from just core commerce would have been a more mundane 45 percent.

That's Entertainment
Alibaba's digital media & entertainment unit got a boost from consolidating its Youku video site while cloud continues to grow
Source: Alibaba

On Alibaba's earnings call, Chief Executive Officer Daniel Zhang pointed to the company's integrated approach to entertainment and commerce. In truth, its consolidation of video site Youku helped give that division a bump during the quarter, while also driving deeper losses as it covers the cost of developing content.

Take a step back, though, and you can see where it wants to walk the path mowed by Amazon.com. During the quarter it decided to consolidate all its media and entertainment businesses into one team, allowing Alibaba to leverage its various platforms to cross-promote and to also use the cash-generating commerce business to pay for content production. 

Slow Down
Annual active buyer growth in Alibaba's china retail commerce business hit single digits on yearly basis for the first time in at least five quarters
Source: Alibaba

Don't expect costs in that division to shrink anytime soon, with Chief Financial Officer Maggie Wu telling investors Tuesday that it'll continue to spend money on licensed and original programming. But if the gamble pays off, it'll help keep Chinese consumers stuck to Alibaba instead of wandering off to spend time (and money) elsewhere, such as at the suite of offerings provided by Tencent Holdings Ltd.

Then there's cloud. An announcement this month for an Olympic sponsorship deal through 2028 seems on the surface to be simply a content play, but in fact the Chinese company paid $800 million to become not only the sporting body's e-commerce services provider but its cloud-services partner.

What is interesting to note is that while cloud-computing revenue is rising, as we'd expect, average revenue per cloud customer is also expanding despite Wu pointing to a recent price cut and telling investors that profitability isn't the main short-term goal. It would be too much to expect such ARPU growth to continue indefinitely, but it's a positive sign that prices are holding stable.

Silver Lining
Alibaba is growing its cloud business rapidly while managing to keep average revenue stable
Source: Bloomberg

With active-buyer expansion in its China commerce business slowing to a trickle, Alibaba is going to need to lean more heavily on these new areas to keep the wheels moving. The fact it's making a move early before the wheels of growth fall off should give solace to investors worried that a crackdown on fakes might hurt revenue.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net