Alibaba Group today beat expectations with a 61% rise in revenues and higher underlying profits for the April – June 2018 quarter even though it pumped billions of dollars into logistics and delivery investments, and played down the impact of higher US trade tariffs.
The Chinese e-commerce giant increased total revenues by 61% to RMB80,920 million (US$12,229 million) in the first quarter of its 2018/19 fiscal year, with rapid growth in its e-commerce and other businesses.
Reported operating profits dropped by 54% to RMB8,020 million (US$1,212 million) due to higher share-based compensation expenses following a revaluation of financial arm Ant Financial but would have risen by 9% excluding this one-time effect. Adjusted EBITA increased 13% year-over-year to RMB26,502 million (US$4,005 million).
Core commerce revenues also increased by 61% to RMB69,188 million (US$10,456 million) while adjusted EBITA grew by 22% to RMB32,797 million (US$4,956 million), representing a margin of 47%.
In China, annual active consumers on the Taobao retail marketplace grew by 24 million, mostly from smaller cities, to 576 million as June 30, 2018. Tmall increased its B2C market leadership as physical goods GMV grew 34% year-over-year driven by continued increases in conversion rates and average consumer spending with strong performance from FMCG, consumer electronics, apparel and home goods categories, and with more international brands launching stores on the marketplace. The ‘New Retail’ physical store network expanded to 45 Hema store in 13 cities.
Alibaba Group continued to invest heavily in logistics and delivery operations during the April – June 2018 quarter, finalising the full takeover of food delivery company Ele.me. The business will be combined with ‘local services’ delivery firm Koubei into a holding company, with $3 billion investment pledged by Alibaba and Japan’s Softbank.
“Ele.me and Koubei, a leading local services platform focused on in-store consumption in China, work together to provide a comprehensive local services offering that is core to Alibaba. Our plan is to aggressively invest in these businesses to gain market share and execute deep integration into the ecosystem of Alibaba service offerings, such as incorporating local services users into our new 88VIP, as well as delivery support to mom-and-pop convenience store operators on Alibaba’s Lingshoutong (LST) platform and Hema supermarket stores,” Alibaba stated.
Meanwhile, logistics aim Cainaio Network reported quarterly external revenues of RMB 3,327 million (US$503 million) from domestic and international one-stop-shop logistics services and supply chain management solutions for third-party clients. The logistics subsidiary’s costs were not disclosed separately.
As already reported by CEP-Research, Cainaio announced several major investments during the quarter to expand its Chinese and international activities. In May, Alibaba and Cainiao led a US$1.38 billion investment for an approximate 10% equity stake in ZTO Express. The two companies plan to deepen their collaboration in the transformation of China's logistics industry amid the growth of New Retail.
In June, Cainiao announced it will lead a joint venture with China National Aviation Corporation (Group) Limited and YTO Express that will invest approximately US$1.5 billion to build a world-class digital logistics center at Hong Kong International Airport. This facility, leveraging leading technologies such as automated warehousing and temperature control solutions, will be a connection and routing point for ground transportation in the Pearl River Delta.
Elsewhere, Alibaba Group’s cross-border and international retail businesses continued to grow fast with quarterly revenues up by 64% to RMB4,316 million (US$652 million).
In South-East Asia, Lazada is reorganising its business into three segments: a C2C marketplace, LazMall, a B2C branded flagship store mall, and LazGlobal, a cross-border e-commerce business. “We believe the deepened integration with the Alibaba ecosystem will drive enhanced customer satisfaction and market leadership in the future. We are highly committed to the Southeast Asian market and will continue to invest in Lazada’s growth and customer reach,” the Chinese group emphasised.
CEO Daniel Zhang said: “Alibaba had another excellent quarter, with significant user expansion and even more robust engagement across our growing ecosystem. Our China retail marketplace business continues to gain share, with New Retail initiatives driving further revenue growth and enabling our retail partners to seamlessly serve customers.
“We are executing our plan of providing more value and choice to users along the consumption continuum, with digital entertainment and local service offerings that tap into big addressable markets beyond core commerce. We will continue to invest in strategic business opportunities and innovation to sustain our competitive advantage and for long-term growth.”
CFO Maggie Wu added: “We delivered another great quarter with 61% revenue growth as well as strong profit growth, excluding one-time items. We are pleased with the strength and rapid growth of our business at such significant scale.”
In a call with analysts, the group’s Executive Vice Chairman Joe Tsai played down the potential impact of trade tensions and rising US tariffs on Alibaba’s business.On the macro-economic environment, he said: “It is clear nobody wins in a trade war. Over the years, China has become less reliant on exports so that the Chinese economy can withstand the imposition of tariffs on Chinese products.”
He predicted that domestic demand in China will continue to be driven by three key long-term trends: real wage growth with more people joining the middle class; healthy household balance sheets based on high savings rates; and easier access to consumer credit.
In terms of the impact on Alibaba, Tsai pointed out: “Alibaba’s business is focused on capturing the Chinese domestic consumption opportunity and is less reliant on Chinese exports. We believe Chinese government policy will continue to support imports into China to satisfy the rising demand of Chinese consumers. If U.S. goods become too expensive due to tariffs, Chinese consumers can shift to domestic producers or imports from other parts of the world,” he stated.
“In terms of our international expansion, the world is a big place. We have made substantial progress in emerging markets, such as Southeast Asia and South Asia, as these markets are ripe for us to add more consumers into our ecosystem.”
On the group’s small US presence, he explained: “When you look at Alibaba’s presence in the United States, our focus is on helping American farmers and small businesses sell their products to Chinese consumers. In addition, as demonstrated by our partnership with Starbucks, we are working constructively with American brands to better serve Chinese consumers.”
