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Alibaba Sales Beats Estimates on Cloud, E-Commerce Growth

  • Lulu Yilun Chen
  • November 03 2016, 6:30am EDT

(Bloomberg) -- Alibaba Group Holding Ltd. quarterly sales and earnings beat expectations as growth in cloud computing services bolstered an e-commerce business that continues to defy a slowing Chinese economy.

Revenue at China’s biggest operator of online shopping malls rose 55 percent to 34.3 billion yuan ($5.1 billion), the company said on Wednesday. That compares with the 33.9 billion-yuan average of estimates compiled by Bloomberg. Adjusted earnings-per-share were 5.26 yuan, compared with the 4.69 yuan expected by analysts.

Alibaba is capturing even more of a consumer shift to shopping on mobile devices as it uses its massive computing power and investments in data centers to win cloud customers and add a new leg of growth. The results come about a week before the company’s annual Singles’ Day sales event, the world’s biggest 24-hour shopping promotion.

“At this growth rate, Alibaba’s cloud unit could break even as soon as next quarter," said Li Muzhi, a Hong Kong-based analyst at Arete Research Services LLP. "The company’s ability to make money from advertisers on its core e-commerce platforms has also improved."

Shares of Alibaba rose more than 3 percent in pre-market trading. The stock closed at $101.15 in New York Tuesday and has gained 24 percent this year compared with a near-3 percent gain for the NYSE Composite Index. That came after a 22-percent dive in 2015, when Alibaba grappled not just with a slowing Chinese economy but also lawsuits accusing it of being slow to remove counterfeit goods from its websites.

Chairman Jack Ma is complementing the datacenters drive with a push into entertainment as the company gets deeper into the movie and video streaming business.

And its e-commerce division -- by far its largest -- continues to outperform, helping total sales beat analysts’ expectations for the fifth straight quarter. Core commerce revenue rose 41 percent to 28.5 billion yuan while sales from the new digital media and entertainment division quadrupled to 3.6 billion yuan.

The cloud unit’s revenue leapt 130 percent to 1.5 billion yuan in the quarter, the company said. The division narrowed its loss to 57 million yuan after more than doubling its paying customers to 651,000.

“We still see great potential for this paying customer base growth, and our next milestone goal is going to be 1 million,” said Maggie Wu, Alibaba’s chief financial officer. “We’ve seen that more than 50 percent of the unicorn companies in China are paying for our Ali Cloud services.”

Alibaba has highlighted trillions of dollars in Chinese households savings as a key driver of growth. After free cash flow reached $8 billion last year, it pledged to keep investing on expansion, despite the potential drag on the bottom line.

The company is moving into untapped rural markets, exploring areas abroad and investing in new sources of income from online media to cloud computing. Alibaba bought Youku Tudou to expand into online video and Lazada to gain a foothold in Southeast Asia.

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