Valued by investors at nearly half a trillion dollars, Alibaba Group Holding Ltd. tore through analyst expectations when it released its fiscal second quarter results Thursday before the bell, and predicted even more growth ahead.
The China-based e-commerce giant reported a fiscal second-quarter profit of $2.66 billion on sales of $8.29 billion, boasted of near-triple-digit percentage growth in its cloud-computing division along with core commerce growth of 63%. Executives also increased its revenue guidance, saying sales would grow 49% to 53%, up from 45% to 49%.
Alibaba stock fell 0.7% to $184.81 Thursday despite the rosy outlook. but shares are still up 110.5% this year, as the S&P 500 index SPX, +0.31% has gained 15.2%.
Executives on the call pointed to new customers, increased traffic and the effects of personalization technology as primary reasons for the sales and earnings growth. Alibaba is constantly compared with American e-commerce titan Amazon.com Inc., AMZN, +1.59% but executives outlined a vision for the future that departs from Amazon in several significant ways on Thursday’s second-quarter earnings call.
One major difference is Amazon’s $99-a-year Prime loyalty program that offers free two-day shipping and access to streaming video content, among other perks. While that has been enormously successful in the U.S.—Amazon has about 60 million-plus Prime members paying annual subscription fees, according to MKM Partners—Alibaba executives say they want to create a distinct version.
“We don’t want to simply copy the Prime model from Amazon to China,” Alibaba Chief Executive Daniel Zhang said. “I think in China, we can generate our own model. And the purpose of this loyalty customer program is to enhance the stickiness of the loyalty customers and also give people a very clear road map how to be loyalty customers and so that we have more and more people to be with us.”
While Amazon has made several bets on its own branded retail stores, such as physical book stores and a pilot convenience store in Seattle, the company has by and large sought to wholly own its brick-and-mortar retail presence—as its recent acquisition of Whole Foods Market Inc. demonstrates.
Alibaba does not. With its Hema business, a unit which combines a grocery store, eatery and fulfillment center in one place on its tech platform, executives say plans are in the works to turn it into a franchise. The unit itself is growing rapidly and while the company doesn’t see it as a profit generator in the near term, executives say that’s not the point.
“In terms of profitability, again, this is a new initiative,” Alibaba’s Chief Financial Officer Maggie Wu said on the call. “We’re not aiming to profitability any time soon. So we focus on expanding the business and the top line.”
Wu said revenue growth for its Hema business was about 180%.
Source: Marketwatch
