Alibaba Defies Slowdown in China with Strong Earnings
On Wednesday, the Alibaba Group announced that revenue for the three-month period through September 30 had grown strongly, as the many brands and small vendors on its shopping sites online kept up their strong spending for advertising.
Although the economic growth in China has slowed, more people are turning to sites on Alibaba while shifting away from the physical retail locations such as malls.
Alibaba announced that its sales increased by 55% to end the quarter at $5.13 billion. Net profit fell by 69% from the same period one year ago, to end the quarter at $1.05 billion, due to a one-off accounting game posted last year.
While the business had mostly been immune to the slowing growth across China, as the GDP grew 6.7% over the last three quarters, but down from the full-year of 2015 when it grew 6.9%, the value of its goods sold across all its online platforms has started to plateau.
Part of that is due to the strong hold on the online market it has for middle class consumers in China of which nearly all of them own at least one smartphone.
As a way to compensate for the slowing of growth in sales on its different platforms, Alibaba, which earns money through fees and advertising paid by the vendors that open virtual stores had been doing additional things to improving the targeting of its ads. It is seeking as well to bring in new global brands that pay fees to sell on the platforms.
However, given the current slowdown, analysts focused more on other businesses that the company has been busy building during recent years.
Many analysts have focused particularly on the cloud services of Alibaba, which similar to Amazon’s, provide back-up easy to use computing power for a number of companies.
Cloud service revenue more than doubled compared to the same quarter one year ago to just over $224 million. However, an operating loss of $60 million was posted.
Alibaba said it added over 74,000 new subscribers to its service, raising total paying users for the service to 651,000.
Analysts predicted the business could begin making a profit for Alibaba over the next couple of years.