E-commerce giant Alibaba Group Holding Ltd. reported a 61% increase in sales, as Chinese consumers continued to spend on the Internet despite slowing economic growth.
Alibaba, the operator of China’s two largest e-commerce platforms Taobao and Tmall, said in a statement on Thursday its core e-commerce business kept charging ahead in the most recent quarter, driving overall revenue up 61% from the year-earlier period to 80.9 billion yuan ($11.83 billion).
NYSE-listed Alibaba said it collected higher commissions and sold more ads to merchants in its fiscal first quarter, which ended June 30, as consumers kept up their purchases on its websites. The growth comes even as China’s economy posted slower growth in the same period, weighed down by a top-priority government debt cleanup and fears of prolonged trade friction with the US .
“Domestic consumption is supported by three important trends we have seen in the past several years, and which we believe will continue to be the case,” said Joe Tsai, Alibaba’s vice chairman in a call with investors. “Real wage growth with more people joining the middle class, healthy household balance sheets based on high savings rates, and easier access to consumer credit.”
Before the results, investors had been increasingly worried about the toll slowing economic growth in China may have on e-commerce stocks, said Jerry Liu, China internet analyst at UBS Investment Bank in Hong Kong. As China’s growth slows, consumers’ retail confidence and merchants’ willingness to spend on advertising may be affected, he said.
Alibaba’s rise in revenue was also accompanied by the company’s success from its push into brick and mortar stores. Its effort to meld online and physical store sales through initiatives such as its Hema grocery chain, which operates more than 45 outlets across China, are now paying off and helping to boost sales, the company said Thursday. Alibaba has been trying to diversify beyond e-commerce to remain competitive in the fast-evolving internet-services sector in recent years.
On Thursday, Alibaba also reported earnings for the quarter fell 41% to 8.7 billion yuan on a one-time stock compensation charge from the revaluation of its financial-services affiliate Ant Financial Services Group. Without the stock compensation charge, Alibaba said its net income rose 33% from a year ago.
The Hangzhou-based company’s fortunes stand in contrast to its fierce rival and peer Tencent Holdings Ltd. Chinese social media and gaming giant Tencent posted a rare profit decline and lower-than-expected sales earlier this month, as government regulators make it harder for the company to make money off its most popular videogames.
Still, Alibaba’s stellar sales growth comes at a cost. In the same statement, the Chinese technology company said it would merge its Ele.me food-delivery unit with affiliate Koubei, which offers reviews and information similar to Yelp Inc., into a new unit focusing on serving consumers. Alibaba and other shareholders, including SoftBank Group Corp., will invest more than $3 billion into the newly created unit.
Although it was necessary to invest in local services such as food delivery to cater to changing consumer needs, these investments would weigh on profits in the near term, Maggie Wu, the company’s chief financial officer warned on the call on Thursday. (WSJ)