Alibaba Profit up 37% but Revenue Growth Eases

Chinese e-commerce leader Alibaba said Wednesday that net profit increased 37 percent in the latest quarter as growth in cloud computing and other business lines helped offset a slowing expansion in core online retail.

Net profit reached 33.0 billion yuan ($4.9 billion) in the October-December third quarter.

Alibaba dominates China’s emerging consumer culture and its corporate results were widely anticipated for any signs that a worsening Chinese economic slowdown and the US-China trade tussle were turning off shoppers.

Revenue growth, the key measure of the company’s business health, indeed slowed in the quarter. Overall company revenues reached 41 percent while turnover in core e-commerce was 40 percent.

Most companies would envy such a performance, but that was the slowest increase in more than two years for a company accustomed to increases of 50 or even 60 percent.

A consensus of analysts polled by Bloomberg had forecast a revenue rise of nearly 44 percent.

Chinese GDP grew 6.6 percent in 2018, the slowest rate in 28 years, according to official figures that sparked concern globally about the world’s second-largest economy.

Alibaba’s earnings announcement made no mention of the country’s economic slowdown, as CEO Daniel Zhang focused on the growing contribution of forward-looking segments like cloud computing and data.

“Our growth is also driven by the power of Alibaba’s cloud and data technology that helps expedite the digital transformation of millions of enterprises,” Zhang said.

Tougher business environment

Analysts expect the Chinese internet sector to face headwinds this year due to domestic economic woes and the trade tensions.

Investment research house CLSA said in a recent report that consumer spending will slow in 2019 and that Chinese e-commerce firms can “anticipate a tougher business environment” unless Beijing adopts aggressive stimulus measures.

Alibaba announced in September that charismatic founder Jack Ma would step down in 12 months, adding to questions about its future.

But analysts expect Chinese consumer spending to continue to rise steadily.

“As Chinese consumers upgrade their lifestyles, they will purchase higher-quality products as well as more services and entertainment,” CLSA said, adding that Alibaba was well-placed to profit from this.

Companies like Alibaba are at the nexus of a national economic strategy to encourage more domestic consumer spending and thereby lessen the reliance on fickle foreign demand for Chinese exports.

US research firm eMarketer said in a report this month that China will surpass the United States in consumer spending in 2019, reaching $5.64 trillion, with more growth expected ahead.

It said online buying would account for 35 percent of all Chinese retail sales — compared to the US’s 10.9 percent — with Alibaba handling 53 percent of that.

Besides expanding its cloud services, Alibaba is tapping overseas markets and pouring money into what it calls “new retail”, which optimises in-store sales and service using data culled online.