Alibaba surges on buoyant sales forecast as new forays pay off
Alibaba Group Holding Ltd. shares rose the most in almost two-and-a-half years after forecasting sales growth that topped every analyst’s estimate, defying expectations that growth must slow by dint of a decelerating economy and its own sheer scale.
China’s largest e-commerce company forecast 45 to 49 percent revenue growth in the year ending March, sustaining a near-unbroken run of 40 percent-plus annual rises and underscoring how investments into businesses beyond its bread-and-butter of online shopping are paying off. The company’s U.S. shares rose as much as 14 percent to $142.85, the most since September 2014 and a record high.
Alibaba and Tencent Holdings Ltd. -- which dominate online shopping and social media, respectively -- have ventured deeper into new areas from cloud computing services to streaming music and video as the country’s economy slows. The online shopping giant founded by billionaire Jack Ma is capturing more digital advertising spending by incorporating social elements such as video in its shopping sites.
To reflect an increasingly diverse customer base, Alibaba will start reporting “active consumers” as opposed to just buyers, Chief Financial Officer Maggie Wu said during the company’s annual investor-day conference Thursday. It’ll begin to disclose “customer management revenue” instead of just online marketing, to reflect a broader base of advertising platforms.
The forecast compares with the 35 percent average of estimates and surpassed the most bullish projection of the 43 analysts tracked by Bloomberg.
Alibaba is spending billions of dollars on new businesses in part to counter Tencent’s increasing dominance of online social media and entertainment through WeChat, a messaging and networking powerhouse.
Considered a barometer of Chinese consumer sentiment, Alibaba has also expanded abroad since buying control of Lazada Group SA to establish a foothold in Southeast Asia, potentially setting up a clash with Amazon.com Inc. Its AliExpress site remains for now the main window through which it targets foreign shoppers.
While Alibaba has outperformed expectations, investors remain concerned about a deceleration in China’s economy and similar efforts by Tencent to capture digital ad spending and muscle in on its turf. In response, Alibaba moved into untapped rural markets and explored new sources of income.
Most of those new businesses are years away from contributing to the bottom line. On Thursday, Wu said Alibaba will continue to sacrifice a small slice of profitability to help bankroll its forays.
Cloud computing services in particular now account for about 5 percent of overall sales. A service akin to Amazon’s AWS that provides computing power over the internet, it’s become one of the company’s fastest-growing businesses and underpins other pieces of the Alibaba empire such as streaming and e-commerce. The priority remains expansion for now, she added.
“Profitability is still not the priority for our cloud business,” Wu told investors. Alibaba wants to “quickly expand cloud leadership in coming quarters.”