Alibaba Is Defying China's Slowdown With Strong Sales

The Chinese Giant Has Been Successful at Capturing the Shift to Mobile Shopping

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China is emerging as the global leader when it comes to fusing technology and retailing.
China is emerging as the global leader when it comes to fusing technology and retailing. Credit: Brent Lewin/Bloomberg

Alibaba Group defied the slowdown in China's economy with sales that climbed by almost a third as the online emporium captured more of the nation's shift to mobile shopping.

Sales jumped 32% to $3.5 billion in the three months ended September, the company said Tuesday. Shares rose as much as 12% in pre-market trading as the stock heads for its best month since last year's initial public offering.

Alibaba Group Holding Ltd. has forged partnerships with retailers including electronics chain Suning Commerce Group, and offered new cloud-based services for merchants to stoke transaction growth and limit the impact of an economy heading for its slowest growth in 25 years. Increased promotions on Alibaba's and Taobao Marketplace are driving sales ahead of next month's Singles' Day, the country's biggest shopping event.

"The results were surprising because people were expecting weak performance due to an overall slowdown in China's economy," said Li Yujie, an analyst at RHB Research Institute in Hong Kong. "It was a beat because people's expectations were pretty low."

Net income climbed to nearly $3.6 billion after recognizing a gain in the market value of its stake in Alibaba Health Information Technology Ltd., a separate publicly traded company.

Video deal

Even as China's economic growth drops to a level not seen since the late 1970s, billionaire Chairman Jack Ma is pushing ahead with acquisitions. The company has participated in almost $15 billion of deals announced this year, about triple the number for all of 2014, according to data compiled by Bloomberg.

The company this month offered $4.6 billion for the rest of video platform Youku Tudou to stream more content to Chinese internet users through control of the YouTube-like site. Buying Youku is part of Alibaba's plans to reach more of the 594 million Chinese who access the internet from mobile devices and are hungry for online content.

Alibaba is investing more in online-to-offline services in competition with rivals Tencent Holdings Ltd. and Baidu Inc. That includes investing in Didi Kuaidi, China's biggest taxi-hailing application, and backing the merger of group-buying platforms and

"Going forward investors will be looking at how Alibaba increases its growth in rural areas, a sector that the government has also been emphasizing," said Mr. Li at RHB Research.

Mobile shift

Gross merchandise volume in China, Alibaba's largest business, rose 28% to $112 billion in the quarter. Mobile revenue almost tripled to $1.6 billion.

"We are winning in mobile and remain focused on our top strategic priorities, including internationalization," Chief Executive Officer Daniel Zhang said in the statement.

While mobile platforms help capture the millions of consumers shopping on smartphones and tablet computers, the smaller screens typically generate less advertising revenue.

Singles' Day on Nov. 11 seeks to lure bargain shoppers, and the promotion last year had five times the sales of Cyber Monday in the U.S.

Alibaba also faces renewed pressure about selling counterfeits on its websites, with the American Apparel and Footwear Association requesting that Taobao Marketplace be put back on a U.S. government "Notorious Market" list that shames intellectual property rights violators.

Alibaba said the Securities and Exchange Commission has concluded a probe into the company and won't be recommending an "enforcement action" against it. The investigation was started in February when a Chinese regulator criticized Alibaba's business practices.

--Bloomberg News--

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