Alibaba Had a Bright Quarter
BEIJING ― The Alibaba Group, the Chinese e-commerce leviathan, reported a rise in sales of more than 60 percent in the latest quarter compared with a year earlier.
Profits for April to June fell by more than 40 percent, however, reflecting the effect of a large increase in the valuation of Ant Financial, an Alibaba sister company. Because Alibaba has given some employees awards based on Ant shares, the group’s compensation expenses grew sizably.
Had that not been the case, the company said, profits would have grown by more than a third.
Alibaba is already among the world’s largest and most influential forces in digital retail. But it is setting its sights on providing technology to enable all commerce, whether online or off, along with logistics and marketing. Thursday’s strong results suggest that the company’s empire building has not harmed the current core of its business: selling ads to the merchants on its shopping platforms.
“This model is kind of unique,” said Jialong Shi, an analyst in Hong Kong with the investment bank Nomura. “If the macro slowdown is to take a toll on the overall retail business, Alibaba should, on the back of this unique marketplace model, fare relatively better.”
Many Chinese internet companies have been in choppy waters recently. Last week, shares of Tencent Holdings, the colossus of social media, messaging and payments, tumbled after the company reported a rare drop in profit growth. Tencent’s stock more than doubled in value last year. This year, it is down about 30 percent from its peak.
JD.com, the Chinese e-retailer and Alibaba rival, has had a similarly rough year. Investor skepticism also has not spared a swath of smaller Chinese names, in businesses from e-books to gadgets.
Alibaba’s share price has swung, too, as the company invests to broaden its reach in the brick-and-mortar world. It is opening its own supermarkets and modernizing mom-and-pop stores. It is teaming up with Starbucks to deliver Frappuccinos. It has unveiled a towering “car vending machine” in Guangzhou that dispenses vehicles for test drives.
The more different realms of consumer life in which Alibaba has a hand, the more data it can amass on how consumers spend, and on what they want. That makes Alibaba’s platforms more useful to vendors, which in turn helps the company sell more ads and services to those merchants.
But all that spending for the future has eaten somewhat into Alibaba’s profits in the present.
Pessimism, along with the rising cost of living, has turned some young Chinese into penny pinchers. Alibaba said on Thursday that the value of sales on its Tmall platform, which caters to wealthier customers, grew by more than a third in the June quarter compared with a year earlier. That is somewhat slower than the 40 percent growth clocked in the previous quarter.
Another sign of the times: A bargain-basement app called Pinduoduo has come out of nowhere to become one of China’s most popular online retail destinations. Nearly 350 million people took to the app in the last year to buy dirt-cheap products of sometimes iffy quality and authenticity. Pinduoduo’s parent company, which was started only three years ago, listed shares on Nasdaq in July.
A far greater value of merchandise is still sold on Alibaba’s Taobao platform than on Pinduoduo, and Taobao still has many more merchants. But Steven Zhu, an analyst with the research firm Pacific Epoch, said surveys of merchants and conversations with industry insiders had led him to believe that many of Pinduoduo’s more than one million merchants were also on Taobao.
That suggests that these vendors might shift their energies this year to selling wares on the newer, hotter platform.
“From a sustainability perspective, I think Pinduoduo still has issues,” Mr. Zhu said. But for Alibaba, he said, Pinduoduo’s size “is something that you cannot ignore at all.”