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Technology Stocks : Alibaba Group Holding Limited
BABA 191.19+0.7%Nov 24 5:15 PM ESTNews

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From: Glenn Petersen11/2/2017 11:10:16 PM
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Alibaba’s Earnings Jump as China’s Online Shopping Boom Continues

By RAYMOND ZHONG
New York Times
NOV. 2, 2017



Alibaba’s headquarters in Hangzhou, China. It has become one of the most highly valued technology companies in the world. Credit Wang He/Getty Images
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HONG KONG — When Joseph C. Tsai, the billionaire vice chairman of the Alibaba Group, recently agreed to buy a 49 percent stake in the Brooklyn Nets, it was a sign of the enormous financial success that the company has enjoyed amid China’s e-commerce boom.

A visit to Alibaba’s largest shopping service, however, reveals one of the company’s biggest challenges. Available for purchase there is a wide variety of knockoff Nets merchandise, from jerseys to caps to T-shirts.

Alibaba has become one of the most highly valued technology companies in the world, and its recent string of strong financial results has signaled the continued rise of China’s internet industry and the heartiness of its hundreds of millions of online shoppers.

The company said on Thursday that profit for its most recent quarter more than doubled compared with the same period a year ago, thanks in part to a 61 percent rise in revenue. By comparison, Amazon reported a 34 percent revenue increase for the same quarter.

Still, the results released Thursday show that Alibaba still has ground to cover as it seeks to grow beyond e-commerce into more of a data and technology company. Apart from online shopping, its other businesses lost money.

Bigger and Bigger

Alibaba’s core business continues to be a money-spinner. That business generated nearly $3.6 billion in income during the quarter, about 50 percent more than a year ago. The company says nearly half a billion people now shop on its platforms annually.



Alibaba’s executive vice chairman, Joseph Tsai, recently agreed to buy 49 percent of the Brooklyn Nets — but knockoff Nets merchandise is still easy to find on the group’s shopping sites. Credit Mike Blake/Reuters
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Despite worries about a debt binge that could choke economic growth, China’s new consumer class is expanding. That suggests the country’s online-shopping market, already the world’s largest, has room to grow yet. McKinsey estimates that the country’s middle class will expand to 315 million households by 2030, from 116 million households last year. In 2000, China had only two million middle-class households.

Future Bets

Alibaba has ranged far afield of e-commerce in recent years. It owns a movie studio, a soccer club and a Hong Kong newspaper, plus stakes in a variety of tech start-ups. The company is also spending $15 billion over the next several years on research in artificial intelligence and other cutting-edge fields.

In the near term, though, investors are more interested in Alibaba’s recently announced investment of the same amount in logistics. Alibaba has long depended on outside companies to deliver packages. But Jack Ma, the company’s founder and executive chairman, has said his goal is to ship anywhere in China within 24 hours, and anywhere in the world within 72. That will require a lot of spending.

Offline to Online

Alibaba has found ways to make more money from its shopping platforms. For instance, better targeting of ads at customers has helped generate more interest — and sales — from advertisers.

Still, the company also wants to capture more of the 85 percent of retail sales in China that take place offline. Alibaba has been buying stakes in grocers and other brick-and-mortar stores since well before Amazon’s acquisition of Whole Foods this year.

It has even opened its own grocery stores where purchases are made via smartphone app. These locations serve as hubs for delivering food to nearby homes, while also catering to shoppers who like to pick out fresh items, such as seafood, in person.

Alibaba says it is not interested in building a large grocery chain, however. The company says it wants to showcase the ways traditional retailers can incorporate online tools into their business — with the hope that those retailers will then do so using tools and services provided by Alibaba.

Going Global

Mr. Ma has circled the planet and hobnobbed with world leaders in his effort to take the Alibaba brand global. The company has paid billions of dollars to take control of Lazada, an e-commerce company in Southeast Asia. And Mr. Ma pledged this year that Alibaba would create a million jobs in the United States by linking small American businesses with Chinese shoppers, who tend to view American-made goods as higher quality.

But those efforts are not close to eclipsing Alibaba’s main businesses in China. In the latest quarter, Alibaba’s e-commerce business earned about 90 percent of its revenue at home.

A version of this article appears in print on November 3, 2017, on Page B5 of the New York edition with the headline: E-Commerce Fuels Alibaba Earnings Leap, but Challenges Loom.

nytimes.com
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