Boyden: The High-stakes Dealings of Alibaba

By tapping into consumer demand, Chinese e-commerce titan Alibaba has achieved tremendous growth in its core online shopping business. The company’s revenue surged in the fourth quarter, with sales from its e-commerce sites increasing by 39%. However, Alibaba has struggled to reach the growth levels it saw before going public in 2014. And, spending on new ventures cut into its profits, lowering net income by 1.4%.

Alibaba’s revenues rose to 24.2 billion yuan ($3.7 billion) in the quarter ended March 31, from 17.4 billion yuan a year earlier, exceeding analysts’ expectations. Sales on Alibaba’s marketplaces grew a healthy 20% or so, but ads and commissions from those sites were the most fruitful, growing upwards of 30%. “Whatever they are doing must be working, and most importantly it’s a sign that the Chinese consumer may not be weakening quite yet”, said Gil Luria of Wedbush Securities.

Where Alibaba has run into trouble, at least in the near term, is with investments in new businesses, particularly those in highly competitive sectors. Its Koubei business, a service which allows customers to order food and other items and services on their smartphones, generated $135 million in losses in the fourth quarter.

Alibaba’s online financial services affiliate, Ant Financial Services Group, recorded a net loss in the fourth quarter as well, Reuters reports. The business spent heavily on its online and mobile payments service to compete with WeChat Payment, owned by rival Tencent Holdings.

It could rightly be said that Alibaba is taking the long view. Despite quarterly losses, Ant Financial Services Group is now valued at $60 billion – making it China’s most valuable financial technology company. As Ant gears up for an IPO, which could take place as early as next year, Alibaba executives say the business is profitable on an annual basis.

Daniel Zhang, Chief Executive Officer of Alibaba Group, said that the company’s focus is on long-term strategic priorities, such as globalization, rural expansion, and building a cloud computing business. “Mobile is set to drive significant growth in digital advertising in China”, said Zhang.

This piece was written by Boyden.