UPDATED 12:15 EDT / AUGUST 23 2018

CLOUD

Partly thanks to fast-growing cloud, Alibaba tops earnings expectations again

Following disappointing earnings reports from China’s two other leading tech firms, Alibaba Group Holding Ltd. today brought a welcome change for investors with first-quarter results that topped Wall Street expectations.

The biggest highlight was the e-commerce titan’s revenue. Alibaba saw sales climb an impressive 61 percent during the first quarter to 80.9 billion yuan, or $11.77 billion. Analysts polled by Reuters on average expected 80.7 billion yuan.

Alibaba’s growth is fueled mainly by its core e-commerce business, which accounts for about 86 percent of the company’s revenue and encompasses a multitude of different online marketplaces. The unit climbed 61 percent in the three months ended June 30, to 69.19 billion yuan, the equivalent of $10.1 billion. That’s an improvement over the 58 percent growth it posted last quarter but slightly less than what analysts had expected.

Another contributor to Alibaba’s strong first-quarter revenue growth was its fast-expanding cloud unit. The division saw sales jump no less than 91 percent year-over-year to 4.7 billion yuan, or $683 million.

Alibaba is investing heavily to maintain this momentum. The company’s growth-focused strategy has come at the expense of its operating margin, which declined to 10 percent from 15 percent last quarter and 35 percent a year ago.

Alibaba Group Holding Ltd.’s public cloud computing arm recently launched a mass of new products and a new partner program. The new offerings from Alibaba Cloud encompass a wide range of information technology fields, including cloud infrastructure, the “internet of things,” artificial intelligence and cybersecurity.

Alibaba expects that the expansion will continue to dampen profits going forward. In conjunction with the earnings, the company divulged that it has invested $3 billion together with Japan’s SoftBank Group Corp. in a newly formed local services division. The unit comprises of Alibaba’s Koubei small business portal and the Ele.me food delivery operation, which it acquired earlier this year in a deal that valued the latter firm at $9.5 billion.

The company’s net income took a particularly big hit in the first quarter because of one-off costs related to another subsidiary, financial services provider Ant Financial. Earnings per share dipped 41 percent to 8.7 billion yuan, or $1.27 billion, yet Alibaba still managed to beat average analysts’ projections.

China’s other top tech firms also saw significant revenue growth in the three months ended June, but they fell short of expectations.  JD.com Inc., the country’s second largest e-commerce player, reported last Thursday that sales rose 31.2 percent, to 122.3 billion yuan, the equivalent of $17.73 billion. Wall Street anticipated 122.7 billion yuan. The day before, internet giant Tencent Holdings Ltd. told shareholders it increased sales by 30 percent in what marked to its slowest growth since the second quarter of 2015.

Photo: Alibaba

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