24 March 2019
Investment in new businesses is expected to impact Alibaba's profits for some time. Photo: Reuters
Investment in new businesses is expected to impact Alibaba's profits for some time. Photo: Reuters

Alibaba June quarter revenue up 61% but margins get dented

Alibaba Group reported on Thursday a 61 percent surge in revenue for the three months to June, beating market expectations, on strong core e-commerce business and increased contribution from its cloud services unit.

Revenue came in at 80.9 billion yuan (US$11.77 billion) for the period, which marks the company’s fiscal first quarter, compared with analysts’ average estimate of 80.7 billion yuan, Reuters reports.

While revenue growth remained strong, costly investments in offline retail, logistics and cloud computing have led to a squeeze in profit margins.

In April-June, Alibaba’s gross margin stood at 11 percent, down from 29.2 percent in the same period last year and marking the weakest level since the firm went public in 2014, according to the report.

Net income attributable to shareholders, fell 41 percent to 8.7 billion yuan, partially due to one-off costs related to share-based compensation following a fundraising round by Ant Financial, Alibaba’s payment affiliate.

Investment in food delivery business is expected to further weigh on profits in the near future.

Alibaba said it had formed a holding company for local services and food delivery firms and Koubei, for which it had received over US$3 billion in new investment commitments, including from SoftBank Group.

Going forward, executives said earnings will continue to be impacted by investments in new businesses, partly due to the consolidation of Koubei and expenses related to its newly-created local services unit.

“This investment into the local services area, combined with the consolidation of Koubei … will result in slower overall gross profit in near term,” CFO Maggie Wu was quoted as saying on a call with analysts.

The local services business is one of several large investments the company has made in recent months.

In the three months to June, Alibaba led a US$1.38 billion investment in Chinese logistics firm ZTO Express (Cayman) and commit US$320 million to a Thai e-commerce project.

The group also invested in sports content, microchips, facial recognition technology and mobile payments in India, the report noted.

Excluding one-off items, Alibaba earned 8.04 yuan per share, or US$1.22 per share, in the June quarter, missing the average estimate of 8.15 yuan per share.

Sales at the core e-commerce business rose 61 percent to 69.2 billion yuan, compared with 58 percent growth in the same quarter a year earlier.

Revenue at its cloud computing business nearly doubled to 4.7 billion yuan, while entertainment unit revenue rose 46.4 percent to 6 billion yuan.

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