Alibaba Seeks Patience From Investors on Its Newer Initiatives -- 2nd Update
May 05 2016 - 01:24PM
Dow Jones News
By Alyssa Abkowitz
BEIJING -- E-commerce giant Alibaba Group Holding Ltd. on
Thursday urged investors to have patience with newer initiatives
after the company posted lower-than-expected profit growth in its
fiscal fourth quarter, despite a 39% jump in revenue.
After posting an 85% increase in quarterly net income to 5.37
billion yuan ($826 million), which came in below analysts'
expectations, Alibaba Vice Chairman Joe Tsai said on a conference
call that it took seven years for the company's Taobao Marketplace
to earn meaningful profit.
"History teaches us that it pays to be patient," Mr. Tsai said.
"New initiatives typically take five to seven years to grow."
Since its blockbuster $25 billion initial public offering in
2014, Alibaba has been spending heavily to invest in areas from
entertainment to media and on-demand services such as food
delivery. Just last month, the Chinese company invested $1 billion
in Southeast Asian e-commerce startup Lazada Group, and $1.25
billion in food-delivery-service company Ele.me.
Some investors have questioned how several of Alibaba's tie-ups
fit into the company's overall strategy. Alibaba's shares on the
New York Stock Exchange have fallen 4.7% over the past year amid
concerns of an economic slowdown in China.
Alibaba also has been facing increasing competition from other
Chinese technology companies in many business platforms. E-commerce
company JD.com Inc., for example, has been chipping away at
Alibaba's market share, with its revenue growth outpacing Alibaba
for the past six quarters, while Internet giant Tencent Holdings
Ltd. has been gaining market share in mobile payments with its
WeChat Pay, a direct competitor to Alibaba's Alipay.
In the conference call, Mr. Tsai gave insight as to how the
company views the stages of its various businesses, ranging from
the current core operations such as marketplaces like Taobao and
Tmall to emerging businesses that are starting to pay off like
cloud computing. Longer-term bets will take years to come to
profitable fruition, he added.
"The ability to remain patient is a competitive advantage," Mr.
Tsai said, referring to those longer-term initiatives. He didn't
elaborate on which businesses fell into this category.
In an effort to revitalize investors and clarify its strategy,
Chief Financial Officer Maggie Wu said Alibaba would begin to
provide greater transparency on its businesses by introducing
annual revenue guidance and releasing new business cost structures
and margins.
"That should be a big positive for the stock," said Henry Guo,
an analyst at ITG Investment Research. "The more visibility, the
more comfortable investors feel about the company."
Alibaba said revenue for the three months ended March 31 rose to
24.18 billion yuan, with much of the growth coming from its
e-commerce retail business in China, along with a growing number of
transactions on mobile devices.
Profit in the latest quarter benefited from gains related to the
disposal of investments and businesses. During the quarter, the
company also said it incurred a foreign-exchange loss of 500
million yuan in connection with deals activity and a loss from its
investment in financial services affiliate Ant Financial, though it
didn't provide specific figures.
Gross merchandise volume -- a key metric that determines the
growth rate of e-commerce companies -- hit 742 billion yuan, a 24%
increase year over year. The company said it would continue to grow
its core e-commerce business by increasing its consumer base and
broadening its product assortment.
Alibaba also sounded a bright note on its cloud computing
business, which now has 500,000 paying customers, more than double
the amount from a year earlier, along with its push into rural
China. The company said it now has a presence in more than 14,000
rural villages, up from 12,000 villages at the end of last year,
and reported that more than 2.1 billion products were sold in rural
China during its first countryside five-day campaign to capitalize
on spending during the Chinese New Year.
"Alibaba is bucking the trend," Mr. Tsai said in reference to
China's economic slowdown. "Chinese consumers have a healthy
balance sheet and the ability to spend."
--Anne Steele in New York contributed to this article.
Write to Alyssa Abkowitz at alyssa.abkowitz@wsj.com
(END) Dow Jones Newswires
May 05, 2016 13:09 ET (17:09 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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