Alibaba Revenue Grows 61 percent but Profits Fall 41 percent

Chinese online retailer Alibaba Group Holding Ltd. generated higher revenue in the fiscal first quarter, driven by its e-commerce and cloud-computing segments, but the company’s profits ended lower-than expected.

Reporting its fastest growth rate in more than four years, the e-commerce giant’s revenue rose 61 percent to CN¥80.9 billion ($11.8 billion) in the three months ended June, beating analysts’ average 

estimate of CN¥80.7 billion.

Net income however, fell to CN¥8.7 billion ($1.3 billion) as the increase in valuation of its affiliate Ant Financial Services Group raises stock-based compensation paid to employees, pulling profits down 41 percent from the CN¥14.7 billion posted in the fiscal first quarter of 2017.

Ant Financial operates under Alibaba Executive Chairman Jack Ma and has established a profit-sharing deal with the Hangzhou-based firm. The fintech company announced in June that it had raise about $14 billion, which valued it at about $150 billion.     

Without the one-time charge, Alibaba’s net income would have grown 33 percent from last year’s period. Excluding one-off items, the firm reported adjusted earnings per share of CN¥8.04 per share ($1.22), missing expectations of CN¥8.15 per share.

E-commerce and Cloud Computing Segment Rapid Revenue Growth

Alibaba’s core e-commerce segment, which covers its online shopping platforms Tmall.com and Taobao, still remained its largest business, representing 86 percent of the retailer’s revenue.

For the fiscal first quarter, the unit brought in revenue of CN¥69.2 billion ($10.1 billion), adding 61 percent year on year and ending slightly lower than analysts’ forecasts of CN¥70.5 billion.

The Chinese tech conglomerate said increase in monthly active users of its Taobao app as well as its new retail strategy helped boost growth. Alibaba’s new retail includes its brick-and-mortar supermarkets Hema and online food delivery service Ele.me.

Hema currently have 35 stores offering sit-down dining as well as groceries and delivery hub, while Ele.me, which have now been merged with Alibaba’s local search engine Koubei , recently raised $3 billion in the latest funding round led by Alibaba and Japanese tech investor SoftBank Group Corp.

Alibaba has also been teaming up with major US consumers to further strengthen its e-commerce division. Luxury jeweler Tiffany & Co. announced earlier this month that it would start selling its items on Alibaba’s Tmall site and retailer Kroger Co. would sell some products.

Besides the e-commerce unit, Alibaba’s cloud computing business has shown rapid growth in recent years despite still being a small contributor to overall revenues. Cloud computing revenues rose 93 percent year on year to CN¥4.7 billion in the fiscal first quarter.

Chief Financial Officer stated that the exceptional growth across their key segments of core commerce, cloud computing, as well as digital media and entertainment proves their strategy of investing in customer experience, product, tech, and infrastructure for the future.

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