Alibaba Group Holding Ltd. beat analysts’ estimates for revenue and profit after an online-sales extravaganza and expansion into rural China helped the nation’s biggest e-commerce operator defy a slowing economy.
Sales rose 32 percent to 34.5 billion yuan ($5.2 billion) in the three months ended December, the company said Thursday, compared with the 33.2 billion-yuan average of estimates compiled by Bloomberg. Net income more than doubled to 12.5 billion yuan, topping estimates of 10.3 billion. Shares rose more than 5 percent in premarket trading in the U.S.
Record revenue during November’s annual “Singles’ Day” promotion drove transaction growth as Alibaba captured more sales from mobile e-commerce, which is replacing shopping from computers. Billionaire Chairman Jack Ma is trying to tap the spending power of the countryside with the Internet expected to blanket all of rural China by 2020, according to the China Academy for Rural Development at Zhejiang University.
“Alibaba continues to grow as urbanization and an ever more ambitious middle class continues to drive up China’s cost of living and consumption,” said New York-based Brian Buchwald, chief executive officer of Bomoda, a consumer intelligence company with a focus on the Chinese market. “At the heart of it, is continued investment in mobile and simplifying payments for virtual and actual purchases.”
Mobile Monetization
Longer-term, Ma is investing in video content, media, on-demand services and cloud computing to generate new sources of income as he takes the e-commerce company global. Shares of Alibaba closed Wednesday at $69.54 in New York. The stock has declined 14 percent this year after a 22 percent slump in 2015.
Gross merchandise volume in its China retail marketplaces rose 23 percent to 964 billion yuan in the quarter, while mobile GMV almost doubled to 651 billion yuan.
More than half the purchases through Alibaba’s e-commerce platforms were done from mobile devices. While it’s crucial that Alibaba serve the growing ranks of consumers acquiring a taste for shopping through smartphones and tablet computers, smaller mobile screens typically generate less advertising revenue.
“Alibaba is on track to gain more shoppers in rural areas and smaller cities in China,” said Li Yujie, an analyst at RHB Research Institute Sdn in Hong Kong. “The sales promotion in November also gave the company a boost.”
The Nov. 11 Singles’ Day promotion logged a record 91.2 billion yuan in sales, a 60 percent increase from the year earlier. A third of buyers made purchases from merchants and brands outside of China during the one-day event.
Overseas Push
Ma has set a goal of getting 50 percent of the company’s revenue from beyond China with Michael Evans, a former Goldman Sachs Group Inc. partner, named president in August to lead the global push.
Cloud computing revenue rose 126 percent to 819 million yuan, Alibaba said. Its AliCloud unit is staking $1 billion on the belief that demand for processing and storage from governments and companies will boost growth during the next decade as its tries to compete with Amazon.com Inc. in computing services. It plans to work with Nvidia Corp. on services and artificial intelligence, recently opened a second U.S. data center and plans its first in Europe this year.
Alibaba is also expanding in the online-to-offline services market. Tencent, Alibaba and Baidu Inc. are competing for supremacy in a local-services industry primed for growth as more people turn to their smartphones or the Web to order food, schedule beauty treatments or hire domestic helpers. Users of those services could rise 29 percent to 400 million by next year, with sales expected to reach 7.28 trillion yuan by 2017.
Last year, the company backed the merger of Didi and Kuaidi to create China’s biggest ride-hailing application.
Investors have highlighted escalating scrutiny about the sale of counterfeits on its websites, such as Taobao Marketplace, as a key risk for 2016. Though the company has said it’s committed to combating fakes, cleaning up its image next year is crucial to Alibaba’s goal of winning the trust of merchants and shoppers overseas.
In December, the U.S. Office of the Trade Representative warned the company it had to do better to stay off the “Notorious Markets” blacklist it escaped only in 2012. The federal agency issued a stern warning that Alibaba’s efforts to fight piracy and respond to complaints would be monitored in the coming year.