Alibaba revenues soar but profit column takes a hit on the spreadsheets

Alibaba comfortably passed analyst estimates for the three months ending June 30, as total revenues soared 61% year-on-year.

Total revenues for the period stood at roughly $12.2 billion, while the team brought in net income of $1.1 billion. Profits at the business have dipped quite considerably, 45% compared to the same period in 2017, though this was primarily due to share-based compensation for Ant Financials’ recent fundraising, and investments in new revenue channels.

“Alibaba had another excellent quarter, with significant user expansion and even more robust engagement across our growing ecosystem,” said CEO David Zhang. “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.”

“The exceptional growth across our major segments of core commerce, cloud computing and digital media and entertainment validates our strategy of investing in customer experience, product, technology and infrastructure for the future,” said CFO Maggie Wu.

The core eCommerce business performed strongly as you would expect, the Taobao site increased monthly active users to 634 million for example, though the new investments are starting to make some waves.

The cloud computing business almost doubled with revenue growing 93% year-over-year to roughly $710 million, driven by land-grabbing additional customers and also increased interest in higher value-added products and services. During June, Alibaba Cloud’s product innovation focused on big data analytics, artificial intelligence, security and IoT applications, though products which enabled migration from on premise data centres onto the public cloud platforms were a notable driver of revenues.

Over at the Digital Media and Entertainment business unit, revenues reached roughly $910 million, a year-on-year increase of 46%. Success has been primarily attributed to Youku, its video hosting service and China’s answer to YouTube, with daily average subscriber growth of 200% year-over-year for the period. Part of this growth will be down to partnerships, such as the relationship with China Central Television (CCTV) to stream all 2018 FIFA World Cup games to hundreds of millions of fans in China. While this is of course a massive boost for advertisers, without such a show-piece next year, the team will have to think of some new ideas.

While Alibaba does seem to now be taking the traditional internet giant approach to business, grow today and make money tomorrow, it does not usually sit well with investors who are in it for the cash. That said, investors will be happy to see success in the new ventures. Profits might be down, but with the cloud and digital media business units performing well, investors will sit easier with other investments in areas such as its AI-powered voice assistant Tmall Genie and online food delivery service Ele.me. Alibaba is demonstrating industry trends are not just myths.

Investors will also be extra pleased with this performance considering the woes of rival JD.com. Last week, the group reported a 31.2% year-on-year rise in revenue to $17.8 billion, though this was short of analyst expectations. This quarter usually sees a boost in revenues due to the mid-year ‘618’ shopping festival, though execs blamed a crossover with national holidays as the reason for declined sales this year.

There’s nothing quite like money in your pocket, but Amazon has proved the ‘invest in tomorrow’ business model can work. Alibaba might have bought itself a bit more breathing room to forget about profits and focus more intently on diversification.