Jack Ma’s diversification strategy is starting to pay off as revenue at Alibaba Group Holding Ltd. 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% in the June quarter, beating analyst estimates. The results drove the stock up as much as 6.2% to $92.77 in New York, the most in more than three months.
Ma has spent billions of dollars buying video website Youku Tudou, Southeast Asian e-commerce company Lazada Group SA 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.
“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 LLP. “The business diversification in digital entertainment and cloud is icing on the cake.”
Sales for the quarter were 32.15 billion yuan ($4.84 billion) compared with the 30.2 billion yuan ($4.55 billion) average of estimates compiled by Bloomberg. Net income was 7.1 billion yuan ($1.07 billion), also beating expectations. The company’s annual active buyers increased 18% to 434 million. Adjusted earnings-per-share were 4.90 yuan (74 cents).
Alibaba’s main shopping service — the Taobao online marketplace — was still finding favor 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% rise in revenue for the core commerce business to 27.2 billion yuan ($4.10 billion). The division posted adjusted earnings before interest, tax and amortization of 16.6 billion yuan ($2.50 billion).
Still, Chinese retail e-commerce accounted for just 73% of Alibaba’s revenue, as Ma pursues a goal of getting half of sales from outside the country and in new sectors. And the company’s 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 U.S. Securities and Exchange Commission into the company’s accounting practices.
As with Amazon.com Inc., Alibaba is positioning cloud computing as one of its faster-growing businesses, eyeing top share in Japan in two years and beefing up its presence in the Middle East and U.S. The cloud unit increased its base of paying customers to 577,000, driving a 156% leap in revenue. The division also more than halved its losses, and executives said it was now approaching break-even.
“Our results show the scale and leverage of our ecosystem, as we strengthen our competitive positions in core commerce, cloud computing and digital media and entertainment,” CEO Daniel Zhang said.
Revenue from media and entertainment almost quadrupled to 3.1 billion yuan ($467.04 million) while the innovation initiatives business, which includes its operating system and mapping service, posted a 30% jump. But losses from entertainment almost doubled as Alibaba spent more on content to lure customers to Youku Tudou and its fledgling over-the-top TV service.
International retail commerce revenue more than doubled on account of Lazada, which granted Alibaba access to major Southeast Asian markets.
Lazada, which at $1 billion is the company’s biggest overseas acquisition, was included in earnings for the first time and is expected to become a linchpin of Alibaba’s global expansion. The company on Thursday affirmed its target of 48% growth in full-year revenue.
“Alibaba’s business has gone far beyond its original e-commerce business and evolved into a sophisticated ecosystem with far-reaching penetration into Chinese consumers’ day-to-day life,” Jefferies & Co. analysts led by Jessie Guo wrote before earnings were released.
By Lulu Yilun Chen and David Ramli, Bloomberg
Samsung Buys US Luxury Appliance Maker Dacor
Samsung Electronics said Thursday it had acquired American luxury appliance maker Dacor, as part of its push towards a full production line of high-end, Internet-connected homeware. The purchase of the California-based company is the latest in a series of acquisitions by the South Korean electronics giant in recent years — including that of U.S. home automation startup SmartThings in 2014.
A Samsung statement gave no details on the value of the deal to acquire Dacor, whose products include stovetops, ovens, ranges and refrigerators. Samsung — the world’s top smartphone maker — is also a leading home appliance manufacturer, producing refrigerators, washers and air conditioners.
Samsung has been on a something of a buying spree in the United States, snapping up a handful of firms including cloud computing start-up Joyent in June. Samsung has been searching for ways to bolster profits beyond its key smartphone business as growth in the global handset market continues to slow.
It has rolled out a growing number of wireless devices or Internet-enabled home appliances in a move towards the nascent market for the Internet of Things, in which household appliances and electronic devices are all inter-connected.
Copyright Agence France-Presse, 2016
Bang & Olufsen Ends Year With a Whimper
Denmark’s Bang and Olufsen reported another loss for the last three months of its financial year on Thursday, having already been in the red in each of the three previous quarters.
The maker of high-end consumer electronics said the net loss for its financial year to May was 208 million kroner ($31.24 million), with more than half of the annual loss clocked up in the fourth quarter alone. Bang and Olufsen said, however, that sales rose by 12% and its gross operating margin was 36.1%, but high costs meant that this was not enough to drag the bottom line into the black.
The company said it expected a better performance in the current year on the back of recent products and cost-cutting.
The maker of upmarket sound systems and televisions, founded in 1925 and known for its clean Nordic designs, has posted annual operating losses over recent years as more people listen to music on mobile devices. In April it pulled the plug on takeover talks with a Hong Kong investor who had appeared willing to throw it a lifeline. But in the end, it decided that billionaire Qi Jianhong’s holding company Sparkle Roll was not in a position to substantiate its initial offer.
Copyright Agence France-Presse, 2016