Alibaba Shares Jump After Sales Pass Wall Street Expectations Again
For the second quarter in a row Alibaba reported revenue above Wall Street’s expectations, as sales grew 55% year-over-year in the latest quarter, to $5.1 billion.
Sales in its core businesses of selling stuff to Chinese consumers jumped by 41% to $4.2 billion, the company said today, but it was newer divisions in cloud computing and entertainment that had eye-popping sales growth rates of 130% and 302% respectively.
Alibaba (BABA) has been coming off a strange few days. Short sellers are targeting the stock—which is up almost 25% on the year and 65% since its February low—while the SEC’s investigation into Alibaba’s accounting practices for Singles Day (among other things) is being helped by an Alibaba insider, the New York Post reported. In May, Alibaba said the SEC was inquiring about its accounting practices, but there have been no updates.
Last month, founder Jack Ma and CEO Daniel Zhang set out their vision for Alibaba’s next decades. They expect the online sales giant to morph into a partner to the traditional retailers it is upending in China—and may upend internationally.
“From our perspective, the most important opportunity on the horizon is not growing online sales in isolation but rather helping traditional retailers upgrade into a brand new retail model,” Zhang wrote in his annual letter to investors. “The excitement is in leveraging internet-based approaches and new technologies to transform the [$4.5 trillion] China retail market to meet the demands of the ongoing consumer upgrade.”
The first stage? Retailers advertising on Alibaba’s sprawling web platforms. Alibaba’s recent investments and acquisitions into businesses in video streaming (Youku), mobile browsing (UC Web), and the Twitter-like Sina Weibo means it is engaging with consumers much more than in previous years. That is expected to drive higher advertising sales as Alibaba tries to look more like Facebook (FB) or Google (GOOGL) in the future. The 57 minutes the daily average user of UC Web spends on the program or the 35 minutes users spent on Youku trails the user engagement on China’s most popular social networks—Tencent’s popular WeChat and QQ—but not by much, according to SunTrust analyst Robert Peck.
Zhang specifically referenced a “digital marketing matrix” during the annual meeting, a combination of UCWeb, Youku, Sina Weibo, and TV-top content provider Tmall Box with Alibaba’s selling platforms Tmall and Taobao.
But first, Alibaba will have to withstand growing losses at Youku, for instance, which is doling out money for streaming rights. In the quarter, the first consolidation of Youku on Alibaba’s balance sheets resulted in a loss of $211 million.
Still, Alibaba earned $1 billion in profits in the quarter. Operating margins only fell slightly, to 27% from 29% last year, despite higher investments in Amazon-like Tmall grocery supermarket, Tmall global, and Lazada, the southeastern e-commerce business Alibaba bought earlier this year for $1 billion.
What all Zhang’s optimistic forecasting boils down to is a company, Alibaba, trying to be a huge and growing retailer that doesn’t overspend on marketing, and is so widespread that other retailers actually use it to advertise, like brands paying for prime space in Sears or Macy’s.
It helps on the advertising front that Alibaba’ users are desirably young for ad buyers. On Taobao, 75% of users are 35 years old or younger.
“The Alibaba model is undergoing its ‘Googlezon’ shift,” Peck wrote last month, “combining Alibaba’s growing ecosystem of media and content much like Alphabet and Facebook, with its dominant presence in ecommerce similar to Amazon.”
The latest quarter continued moving Alibaba, whose market capitalization is still $120 billion short of Facebook’s and far behind Google’s, in that general direction. Before the market opened Wednesday, Alibaba’s stock jumped nearly 5% on the results.