Jack Ma’s diversification starts to pay off at Alibaba

Sales are booming at New York-listed Chinese e-commerce business

Jack Ma's diversification strategy is starting to pay off as revenue at Alibaba Group accelerates to the fastest since its record initial public offering.

Streaming entertainment and cloud computing bolstered a resilient e-commerce business, driving revenue up 59 per cent in the June quarter, beating analyst estimates.

The results drove the stock up as much as 6.2 per cent to $92.77 (€83.02) in New York, the most in more than three months.

Chairman Mr Ma has spent billions of dollars buying video website Youku Tudou, Southeast Asian e-commerce company Lazada Group and web browser UCWeb to make Alibaba less dependent on a slowing domestic economy. That has combined with a push into cloud computing to generate new growth for a company that dominates online shopping in China, and is cashing in on the country's shift toward services from heavy industry.

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“This quarter’s performance lifts investors’ doubt about its ability to maintain growth in its core e-commerce business,” said Li Muzhi, a Hong Kong-based analyst at Arete Research Services.

“The business diversification in digital entertainment and cloud is icing on the cake.”

Beating expectations

Sales for the quarter were 32.15 billion yuan (€4.3bn ) compared with the 30.2 billion-yuan average of estimates compiled by Bloomberg. Net income was 7.1 billion yuan, also beating expectations. The company’s annual active buyers increased 18 per cent to 434 million. Adjusted earnings-per-share were 4.90 yuan.

Alibaba’s main shopping service – the Taobao online marketplace – was still finding favour among the younger users crucial to engagement. Three-quarters of the service’s users were under the age of 35, vice-chairman Joseph Tsai told analysts on a call.

Growth in users drove a 47 per cent rise in revenue for the core commerce business to 27.2 billion yuan. The division posted adjusted earnings before interest, tax and amortization of 16.6 billion yuan.

Foreign investment

Still, Chinese retail e-commerce accounted for just 73 per cent of Alibaba’s revenue as Mr Ma pursues a goal of getting half of sales from outside the country and in new sectors. And the company is willing to spend to get there.

"While the other companies are talking about a billion investment, we are willing to invest multi times of that number," chief financial officer Maggie Wu said.

The quarterly report is the first in which Alibaba has broken out earnings into division segments. The move toward more financial transparency comes after it disclosed in May an investigation by the US Securities and Exchange Commission into the company's accounting practices. – Bloomberg