Profitability and momentum from non-core units like cloud computing and logistics may help Alibaba boost investor confidence amid increasing scrutiny.
Chinese retail conglomerate Alibaba posted better-than-expected revenue growth for the quarter ended December and first-ever profits for its cloud-computing business.
Why it matters: The e-commerce giant has had a rocky past few months. An anti-monopoly investigation, the suspension of the public listing for its financial affiliate Ant Group, and speculation about the location of its once high-profile founder Jack Ma after a months-long disappearance from the public spotlight have pressured the company, once seen as a darling of China’s tech sector.
- Profitability and robust momentum from its non-core cloud-computing and logistics businesses could help build investor confidence at a time when the company faces increasing regulatory scrutiny.
Details: December quarter revenue grew 37% year on year to RMB 221.08 billion ($33.88 billion), beating the $33.35 billion average analyst estimate compiled by Yahoo Finance.
- The company attributed revenue momentum to growth in its core commerce business boosted by the Singles Day promotion held in November, as well as strong growth in its cloud-computing business.
- However, growth excluding revenue from Sun Art, a supermarket chain the company acquired in October, rose 27% during the quarter, signaling a deceleration from the 30% seen in the September quarter and 34% year-on-year growth in the June quarter.
- Core commerce revenue jumped 38% year on year to RMB 196 billion ($30.3 billion), accounting for 88% of total company revenue, thanks to a recovery in consumer spending in China.
- Cloud computing income reached RMB 16.1 billion, up 50% year on year and representing 7% of total revenue, primarily driven by robust growth from customers in the internet and retail industries, as well as the public sector.
- “The cloud division is one-fifth the size of AWS, but it already has many advanced cloud services addressing the needs of key verticals, and it is growing twice as fast as AWS,” Martin Garner, chief operating officer at market information and intelligence agency CCS Insight, wrote in an email to TechNode on Wednesday.
- Net income attributable to ordinary shareholders rose 52% to RMB 79.43 billion during the quarter compared with RMB 52.31 billion from the same quarter in 2019. Alibaba’s equity investments in public companies recorded big increases in value, boosting the bottom line.
- Monthly active users of Alibaba’s China marketplaces reached 902 million, an increase of 21 million from the previous quarter. Taobao Deals, Alibaba’s Pinduoduo counterpart, surpassed 100 million monthly active users as the company continues to focus on budget buyers in lower-tier markets.
- Cainiao, Alibaba’s logistics arm, finished the quarter for the first time with positive cash flow. It earned RMB 11.4 billion ($1.8 billion) during the time period, up 51% over the same period a year ago.
- Alibaba chairman Daniel Zhang offered few updates on the ongoing anti-monopoly investigation during the earnings call held Tuesday night, but reiterated that the company’s “cooperative, receptive and open mindset” toward the investigation.
- Regulator scrutiny of Ant Group has raised concerns that a potential reduction in consumer credit services such as Huabei would impact consumer spending on Alibaba’s e-commerce market places. Zhang said Alibaba attracts buyers with “comprehensive and high-quality product and service offerings” and that payment using Huabei represents “a very small percentage” of total credit granted under Huabei. He added that the vast majority of Alibaba buyers “have linked their payment accounts to multiple funding sources, including credit cards.”
- Alibaba shares fell 3.9% on Tuesday in New York, while its Hong Kong-listed shares declined 3.9% in morning trading on Wednesday.
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