Alibaba revenue surges 42%, beating expectations despite China growth concerns

Krystal Hu
Reporter

China’s e-commerce giant Alibaba (BABA) reported robust revenue growth despite the economic growth slowdown in China and the trade war between Beijing and Washington. Shares jumped as much as 5% on Thursday.

Here’s what Alibaba reported for the quarter ending June 30:

  • Revenue: 114.9 billion yuan (US$16 billion), an increase of 42% year-over-year, vs. 111.6 billion yuan expected

  • Adjusted earnings per share: 12.55 yuan vs. 10.3 yuan expected

  • Annual active consumers: 674 million, a 20 million increase from last quarter

The online retail giant attributed the robust earnings to the continued growth in its core retail business. It’s trying to expand the business of sheer size by the “cross-sell opportunity” within the Alibaba ecosystem to drive up consumers’ purchase frequency and category.

The logo of Alibaba Group is seen at the company's headquarters in Hangzhou, Zhejiang province, China July 20, 2018. REUTERS/Aly Song

Its online marketplace Taobao, which has been benefitting from the continued urbanization in China and Tmall, has been targeting more affluent consumers and wants to grow with the middle-class group. Over 70% of the increase in annual active consumers to Taobao was from less developed areas in China, the company said.

Despite its efforts to build an ecosystem to capture demand from Chinese consumers, Alibaba faces intense competition in both demographics—social e-commerce platform Pinduoduo (PDD) has successfully penetrated the less-developed areas, and JD.com, which mostly sells branded products, reported an impressive 23% revenue growth earlier this week. Management said Alibaba will continue to acquire new consumers and leverage its investment in local services.

“Alibaba is uniquely positioned with a capability to capture opportunities of both the growing middle class in metropolitan areas and urbanization of lower-tier cities,” said Joe Tsai, Alibaba’s vice chairman, on Thursday.

Alibaba CEO Daniel Zhang acknowledges an “uncertain macro economic environment” for small and medium businesses who sell on its platform, and said the company has been conservative in monetization.

Its cloud segment, which dominates the domestic market, grew 66% this quarter to 7.8 billion yuan. Alibaba says this was mainly driven by increased spending by each customer.

This will be Alibaba’s last earnings report before Jack Ma, its founder and chairman, hands the reins to current CEO Daniel Zhang in September.

In its 20th year, the e-commerce giant has been expanding into the physical space with its “new retail” strategy. Its grocery retail chain Freshippo has expanded to 150 locations in 17 cities.

In other news, Alibaba will pay $2 billion for NetEast’s Kaola, a domestic shopping site, local media Caixin reported on Thursday.

The company is also expected to raise another round of capital near its home turf in Hong Kong. The timeline of a second listing is still unclear with the political uncertainties looming in Hong Kong in the past three months.

Krystal Hu covers technology and China for Yahoo Finance. Follow her on Twitter.

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