China’s economy is slowing, but e-commerce giant
Alibaba Group Holding
has found a way around the problem: pushing into smaller, poorer cities.
The country’s answer to
increased revenue by 42% last quarter compared with the same period of 2018, beating estimates on S&P Global Market Intelligence. Alibaba’s expansion in newer, unprofitable businesses like food delivery and cloud services boosted growth. But revenue from the core business—online marketplaces Taobao and Tmall—also increased 26%, allaying worries that China’s economic slowdown may have deterred consumer spending. The shares opened Thursday up almost 5% before paring their gains.
Much of the growth has come from less developed areas of China. During the quarter, Alibaba ran a shopping campaign akin to Black Friday called 6.18 Mid-Year Shopping Festival. The 18-day event has been around for years, but Alibaba achieved record sales this year. More than 70% of the increase in the company’s annual active consumers during the quarter came from lower-tier regions.
Targeting China’s smaller cities doesn’t seem to have dented Alibaba’s profit margins much. Operating profit still rose 27% from a year ago, excluding a one-off share-based payment in the previous year.
Partly this was thanks to narrowing losses in Alibaba’s unprofitable segments such as digital media and cloud services. But Alibaba’s undisputed leadership in Chinese e-commerce likely also helped the company attract merchants in new areas without having to spend too much to acquire them. The company’s dominance also makes merchants willing to pay for exposure on its platforms, especially during a major shopping festival. Alibaba mostly makes money in two ways: advertising for merchants on its Taobao site or collecting commissions for transactions on its Tmall site.
Alibaba’s shares have gained 22% so far this year, outperforming many other Chinese internet names like
but the stock is still 20% below its peak in June last year. Whether the stock can scale a new high depends on whether the company can keep up last quarter’s sales momentum in the face of a slowing Chinese economy.
Write to Jacky Wong at JACKY.WONG@wsj.com
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