Alibaba posts strong third quarter results
E-commerce giant, Alibaba, posted a 54 per cent rise in third quarter revenue ending December 31, 2016, raised its outlook and announced it would step up investments to expand its cloud and digital ventures.
Alibaba reported a revenue of RMB53.2 million (US$7.67 million), an increase of 54 per cent year-over-year. Revenue from core commerce increased 45 per cent year-over-year to RMB 46.6 million (US$6.7 million). Revenue from cloud computing increased 115 per cent year-over-year to RMB1.7 million (US$254 million). Revenue from digital media and entertainment increased 273 per cent year-over-year to RMB4.1 million (US$585 million). Revenue from innovation initiatives and others increased 61 per cent year-over-year to RMB845 million (US$122 million).
“Our robust December quarter demonstrates the strength of the Chinese consumer and Alibaba’s ability to create value across our vast ecosystem,” said Daniel Zhang, Alibaba Group CEO.
“The 11.11 Shopping Festival featured Alibaba at its best, integrating commerce, entertainment and social engagement, all happening globally at record scale,” Zhang said. “We are driving the age of ‘New Retail,’ which leverages big data and innovation to provide a seamless online and offline experience for nearly half a billion mobile monthly active users. This retail transformation will make it even easier and more efficient for brands and retailers to engage with these consumers anywhere, anytime.”
Maggie Wu, Alibaba Group CFO, said with the three quarters of the year coming in ahead of their expectations, they have adjusted their 2017 fiscal year revenue growth outlook from 48 per cent to 53 per cent year-over-year.
“This quarter we generated US$4.9 billion in free cash flow on a non-GAAP basis1, enabling us to continue investing in growth areas globally, including cloud computing, digital media and entertainment and innovation initiatives, as well as core commerce,” Wu said.
Håkon Helgesen, retail analyst at Conlumino, said while Alibaba’s revenue numbers are flattered by the integration of the Lazada business, this was, nonetheless, another robust quarter for the online giant, and one that exceeded initial forecasts.
“All parts of the business pulled their weight, although the international division stormed ahead with stellar growth of 288 per cent over the prior year,” Helgesen said.
The 11.11 Global Shopping Festival, which is a giant day-long online sale, made a healthy contribution to growth: this year $17.8 billion of merchandise was sold over 24 hours.
“In our view, the event is a testament not only to Alibaba’s reach within China and, increasingly, the wider world – but also to its ability to create engaging experiences which excite and stimulate consumers,” Helgesen said. “In essence, the day was as much a social event – with online and virtual reality games – as it was an opportunity to sell product.”
Helgesen said part of Alibaba’s efforts to create a more holistic shopping experience involve going beyond one-dimensional e-commerce by tying their platforms to physical retail.
“We welcome this initiative and liken it to Amazon’s push into bricks and mortar,” he said. “However, like Amazon, Alibaba does not just want to play in the physical space – it wants to reinvent the shopping experience by using data and technology. So far, good progress has been made with an equity stake being taken in Sanjiang Shopping Club (a neighborhood grocery chain in China), and an offer to acquire a controlling stake in Intime Retail Group (which runs department stores and owns shopping centers in China).”
Away from the domestic business, Alibaba’s international side continues to do well.
“Here, Alibaba’s role as a facilitator for Western brands wanting to sell into China continues to be a major advantage and a significant source of growth,” he said. “In short, Alibaba provides a shortcut for retailers looking to expand and grow in China. The opportunities for Alibaba to expand its operations and platforms into foreign markets is also sizeable, although we maintain our view that over the next year the company will stick to countries where e-commerce is less developed. This will help it to maximize returns.”
“In summary, we retain our opinion that Alibaba is a solid, and highly disruptive, retailer.”