BEIJING (Reuters) – Alibaba Group Holding Ltd (BABA.N), China's largest e-commerce company, warned Thursday that investments in its delivery activities would keep earnings under pressure, even though it reported its strongest quarterly growth, largely in line with estimates.
US-listed stocks of the most valuable listed company in Asia rose early on Thursday, but then eliminated the profits to end the day with 3 percent.
Although Alibaba earns money with its core activities, including the online marketplaces Tmall and Taobao and the payment platform Alipay, it has also invested a lot in sports content, microchips and facial recognition technology.
"While Alibaba continues to invest in new retail initiatives, the consolidation of companies with a lower margin such as Cainiao, Ele.me and Lazada shifts the long-term core margin profile," Baird analyst Colin Sebastian said in a note.
"We expect the ongoing focus of management on New Retail's market share will remain a headwind for profitability in the foreseeable future," Sebastian said, tightening his stock target by $ 5 to $ 215.
In April-June, the gross margin of Alibaba was 11 percent compared to 29.2 percent a year earlier, the lowest since the listing of 2014. The profit margins at Alibaba are usually well above 20 percent.
On Thursday, the company reported that it had set up a holding company for its food treatment platform Ele.me and Koubei, a food and lifestyle company, for which it had received more than $ 3 billion in new capital commitments, including SoftBank Group Corp. (9984.T) and Alibaba itself.
Net profit per quarter at Alibaba, led by China's second-largest man, Jack Ma, came under pressure with 41 percent due to a one-off charge for share-based compensation paid to employees to reflect an increase in the valuation of the affiliate Ant Financial [ANTFIN.UL].
Without the accusation Alibaba said that net income would have increased by 33 percent compared to the same period last year. Excluding one-off items, the company earned 8.04 yuan per share, or $ 1.22 per share, with the average estimate of 8.15 yuan per share missing.
Ant Financial, China & # 39; s largest financial technology company, is controlled by Ma and has a profit sharing agreement with Alibaba. In June it announced a fundraising of $ 14 billion, which it valued at about $ 150 billion.
Ant Financial, which is rapidly expanding into foreign markets, is locked in a costly battle for market share at home with WeChat Pay, owned by Alibaba's archrival tencent Holdings Ltd (0700.HK).
ACCELERATING RECEIPT GROWTH
Alibaba shares, with a market value of approximately $ 446 billion, are almost flat this year, including Thursday's losses, compared with a 14 percent increase in the technically heavy Nasdaq Composite Index .IXIC.
But the core activities of eibusiness in Alibaba are still growing at a time when the broader Chinese economy is slowing down in the midst of a trade war with the United States.
It has turned itself into a brick to complement its huge online business and stay ahead of JD.com Inc. (JD.O), supported by Tencent.
Both JD.com and Tencent reported lower revenue growth in the last quarter. Tencent was hurt by weak gaming revenue, while JD.com said that a slump in sales in the summer is detrimental to earnings.
Revenue at Alibaba's main e-commerce activities rose by 61 percent to 69.2 billion yuan. Total sales in June also rose by 61 percent to 80.9 billion yuan ($ 11.77 billion). Analysts expected 80.7 billion yuan, according to Thomson Reuters I / B / E / S.
Alibaba's cloud computing activities almost doubled to 4.7 billion yuan, while revenue from entertainment units increased by 4% to 6 billion yuan.
Reporting by Catherine Cadell; Additional reporting by Arjun Panchadar in Bangalore; Writing by Sayantani Ghosh; Edited by Mark Potter and Muralikumar Anantharaman