Alibaba spends revenue growth as most lucrative business slows



(Bloomberg) – Alibaba Group Holding Ltd. reported its fastest growth rate in more than four years by raising revenues from cloud computing and entertainment, limiting the slowdown of its most lucrative business.

Billionaire Chairman Jack Ma's free spending ways helped the e-commerce heavyweight side-step a Chinese economic slowdown and precipitation of the US-China trade struggle. But competition from rivals supported by Tencent Holdings Ltd. touches the lucrative costs it charges to help salespeople with marketing, a measure known as revenue from customer management and a threat to future profits.

Alibaba shares whipped after the results because early earnings were cleared and the stock closed more than 3 percent lower. The profit comes after a turnaround between technical shares, including Tencent as the owner of the almost ubiquitous WeChat messaging and social network that makes the biggest profit drop in ten years. Meanwhile, internet greats wrestle Facebook Inc. and Twitter Inc. with fundamental issues such as decreasing user growth.

"The problem on the market is that you have this very strong, very mature e-commerce company that has been stretching for a long time, now you are experiencing more competition and especially Tencent," says Eric Wen, founder of the Blue Lotus Research Institute.

While sales growth was strong, Alibaba's earnings fell with an increase in compensation expense and the company announced more than $ 3 billion in new financing for the newly acquired food delivery arm.

As the company continues to expand, it is doing so despite rising tensions between Beijing and Washington.

"It is clear that nobody wins during a trade war," said Vice Chairman Joseph Tsai about an income demand with analysts. "Alibaba's activities are aimed at capturing domestic Chinese consumption and being less dependent on Chinese exports."

Sales at the largest e-commerce company in China rose 61 percent to 80.9 billion yuan ($ 11.8 billion) in the three months ended June, which is the average estimate. Alibaba's rising expenses, such as acquisitions and the expansion of the Hema supermarket chain, do hurt the margins. Adjusted earnings per share of 8.04 yuan lagged behind the 8.19 yuan estimate.

There are now 35 Hema stores with seating and dining facilities plus a delivery hub. A lot of money is also flowing to China's $ 1.3 trillion food retail and service sector, where it tries to push itself off against food supply and super-app Meituan. Alibaba said Thursday that it is working with SoftBank to stop more than $ 3 billion in Ele.me. Alibaba is now planning to merge Ele.me with Koubei, another unit that focuses on connecting restaurants to the internet.

"There is a lot of growth through acquisitions," says Kim Eng Securities analyst Mitchell Kim. "With Alibaba investing in retail and engaging external investors, it can determine the valuation that investors need to account for."

Read more: Alibaba escalates attack on Meituan prior to Rival's IPO

The net result rose by 41 percent to 8.7 billion yuan, but that is after taking into account an increase in the valuation of the affiliate Ant Financial, which increased the costs of shares granted to employees.

Alibaba's exceptions are the new revenue rule: Tim Culpan

However, revenue growth in newer companies may help to mask a slowdown in Alibaba's e-commerce activities, said Steven Zhu, an analyst at Pacific Epoch.

Revenue from customer management grew by 26 percent in the quarter, a decrease of 35 percent in the previous three months. That reflects how Tencent-backed rivals like JD.com Inc. and Pinduoduo Inc. the merchant from Alibaba, Zhu said.

"This is probably the slowest growth ever," he said. "They trade high-quality income with low-quality income."


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