Alibaba’s e-commerce engine is powering its buying spree. The Chinese web giant’s revenue jumped 61% to 61.9 billion yuan ($9.87 billion) in the fourth quarter, beating expectations. Investments abroad and in bricks-and-mortar retailers dragged down margins. Yet Jack Ma’s core e-commerce business is still a juggernaut.
Alibaba’s top-line expansion was mostly down to its core commerce segment, which brought in 83% of revenue in the three months to the end of March.
Many of the traditional metrics showed strong growth. Its online retail marketplaces, for instance, added 37 million mobile monthly active users in just three months.
The show of strength is important because investors are watching the $464 billion company’s buying spree with concern.
Alibaba is investing heavily outside the Peoples Republic, notably in Southeast Asian e-commerce unit Lazada and in what it calls new retail.
Somewhat confusingly for an online retailer, that includes bricks-and-mortar supermarket chain Hema as well as the food delivery service Ele.me. This spending was partly responsible for dragging adjusted earnings before interest, tax and amortisation (EBITA) in Alibaba’s core commerce division down to 43% of revenue from 59% in the same period last year. Overall, adjusted EBITA grew by a relatively humdrum 11% year-on-year.
New revenue sources
These investments could open up new sources of revenue — Alibaba notes a potential $5 trillion market — and pull offline customers into other areas of its business empire, notably its Alipay mobile payment platform. But investors are nervous that Alibaba is diluting a highly profitable business. Analysts at China Renaissance note that the company’s shares trade on the same multiple of expected earnings two years out as they did roughly 12 months ago.
Online firepower
Yet the results are also a reminder that Alibaba’s spending spree is backed by the firepower of its online businesses. And while previous attempts at diversification like Alibaba Pictures have flopped, some new units are generating serious revenue. Alibaba’s loss-making cloud computing business more than doubled its revenue over the past year and may be worth $20 a share, according to Morgan Stanley analysts.
Meanwhile, the ruling on Alibaba’s overall business seems clear: it makes money, and a lot of it.
( The author is a Reuters Breakingviews columnist. The opinions are his own )
