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Alibaba Raises Forecast as Chinese Consumers Continue to Spend

Published on .

A model showing off Victoria's Secret lingerie at a televised Alibaba variety show on Nov. 11.
A model showing off Victoria's Secret lingerie at a televised Alibaba variety show on Nov. 11. Credit: Alibaba

Alibaba Group raised its full-year sales forecast after quarterly results beat estimates, as Chinese spending stays strong and the e-commerce giant wrings revenue from fledgling areas such as cloud computing, entertainment and search.

The company increased its projection for fiscal 2017 revenue growth to 53%, from 48% previously. That may help assuage investors concerned that a deceleration in the world's second-largest economy is curtailing Alibaba's main online commerce business.

Despite a fairly stagnant user base of about 443 million, Alibaba Group Holding benefited from a record spending spree during the annual Nov. 11 e-commerce event known as Singles Day, and gained a larger share of online advertising from rivals such as Baidu Inc. It also more than doubled sales from cloud computing in the December quarter. As transaction growth slows, Alibaba is generating more revenue from merchants by selling them services to draw in buyers, and expanding its Netflix-like entertainment arm.

"The growth is mostly coming from the strong performance in Alibaba's digital entertainment platforms, its ability to make money from cloud computing," said Ray Zhao, a Shenzhen-based analyst at Guotai Junan Securities Co.

Sales rose 54% to 53.2 billion yuan ($7.8 billion) in the December quarter, topping the 50.1 billion-yuan expected by analysts. Net income climbed 38% to 17.2 billion yuan ($2.5 billion), also outstripping the 13.6 billion-yuan average of estimates compiled by Bloomberg.

Chinese retail e-commerce revenue jumped 42% in the quarter, driven by strong demand for the marketing services that merchants pay for. About 80% of that came from mobile platforms, where sales climbed 73%. The company is now also expanding into traditional retail, experimenting with technology to revamp a fragmented $4.8 trillion market.

Coming next

For now, the company still derives most of its business from its home market. But Alibaba is aiming to attract a million small businesses in the U.S. onto its platform within five years, hoping those entities will create one new job each. The initiative was brought up by Chairman Jack Ma in a meeting with Donald Trump in January, as a means to display goodwill after the online emporium was again labeled a "notorious market" awash in counterfeits by the U.S. Trade Representative.

Mr. Ma said as early as in 2015 that the company wants more than 50% of revenue from outside of China. He also said in January last year he wanted to serve 10 million small businesses abroad. That international drive entails spending on marketing.

Revenue from digital media and entertainment rose almost four-fold, bolstered by its online video service Youku and search through UCWeb.

Alibaba's cloud unit remained one of its fastest revenue drivers, supporting the more than $17 billion of sales that flowed through its platforms during Singles Day. Revenue from the business more than doubled last quarter as paying customers rose to 765,000.

Like Amazon.com Inc.'s AWS, the cloud service emerged from the enormous computational power needed to handle millions of online shopping transactions. But unlike its U.S. counterpart, it enjoys home-field advantage in a vast Chinese market where internet-based computing is still novel to many enterprises.

The company this month struck a deal to sponsor the Olympic Games through 2028 that is said to be worth $800 million. Alibaba will provide online computing services and data analytics for the sporting contest, while creating a marketplace for official merchandise and developing an online video channel for viewers in China.

"Brands and merchants spent more due to the shopping promotions on Alibaba this quarter," Julia Pan, a Shanghai-based analyst at UOB Kay Hian, said before the earnings. "Alibaba is trying to offer more targeted marketing strategies for brands using big data and cloud computing services, and also a one-stop solution with its shopping sites and video streaming platform."

--Bloomberg News

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