HONG KONG -- Alibaba Group Holding, China's largest e-commerce company, once again surprised the market with better-than-expected quarterly revenue, pushing its New York-listed shares to a record high in early morning trading Thursday.
Revenue jumped 61% on the year to 55.12 billion yuan ($8.28 billion) for the three months ended September, easily topping the average estimate of a 52.1% rise to 52.15 billion yuan from analysts polled by Thomson Reuters. Revenue growth was driven mainly by expansion in the core commerce segment and the cloud computing business, the company said.
Alibaba also raised its revenue forecast for the current fiscal year ending March 2018. It now predicts a 49-53% increase with a boost from incorporating its Cainiao Network logistics arm into consolidated earnings, up from the previously predicted 45-49%. Quarterly net income, meanwhile, came in at 17.4 billion yuan to miss analysts' average estimate of 17.9 billion yuan.
After touching a record high of $191.22, Alibaba shares retreated somewhat on the New York Stock Exchange.
Revenue in the core commerce segment jumped 63% to 46.46 billion yuan and remained Alibaba's bread and butter, accounting for 84% of total revenue. The cloud computing business also enjoyed another strong quarter, supported by growth in paying customers and higher-value-added services. Revenue nearly doubled to 2.95 billion yuan.
While Alibaba continues to dominate Chinese online shopping, JD.com is also expanding quickly. The two companies are intensifying competition in the category of fast-moving consumer goods, which includes food, baby products and toilet paper.
Even as internet shopping surges in China, Nomura analyst Shi Jialong says this category still has low online penetration. The products are less standardized and are perishable, while bulky items with low unit prices require high logistics costs, he noted in a recent report.
To further strengthen its logistics to compete with smaller rival JD.com, which boasts an in-house fleet, Alibaba raised its stake in Cainiao from 47% to 51% with an additional investment of 5.3 billion yuan during the quarter. It also pledged to invest 100 billion yuan over the next five years to build up logistics infrastructure that will make use of data technologies.
These moves are part of the so-called New Retail strategy under which the company aims to digitize offline retailers while blurring the lines between traditional and online shopping for customers.
Another example of the strategy is the Hema supermarket chain. It opened new locations in major Chinese cities during the quarter, expanding the chain to 20 locations by the end of September. Customers can not only shop for such fresh offerings as seafood and vegetables, but also eat in the store or order online for delivery.
But with Hema operations still in the trial phase, Daiwa Capital Markets analyst John Choi sees them making only a "limited" revenue contribution to Alibaba. The company's goal "is to develop a business model prototype," his team noted in a recent report.
Alibaba also seems to be taking the long view more generally. In a conference call shortly after the results came out, management emphasized the importance of choosing long-term benefits over short-term results. "When we invest for the long term, we not only see financial results come through," Executive Vice Chairman Joseph Tsai said Thursday. "We also build lasting franchise value in the business."
Looking ahead, "in the immediate term, we expect to increase investments in the second half," said Chief Financial Officer Wu Wei, also known as Maggie Wu. These investments will focus on further market penetration and improving the user experience as well as new growth businesses in New Retail and international expansion, she said.
As the company keeps up its massive investments, some analysts warn of a significant slowdown ahead. A team led by Mitchell Kim of Maybank Kim Eng Securities, while acknowledging that it is due to the larger base effect, says the expected slowdown "will dampen investor sentiment." Indeed, Alibaba's share price has more than doubled since the start of the year, and its market capitalization briefly surpassed Amazon.com's in early October. While it is still hovering high, the team noted in a recent report that "Much of the good news has been reflected and we fail to further identify further catalysts to drive up the share price."
The team also expects Alibaba's margins to weaken as the company increases spending on traffic acquisition going forward. With possible headwinds looming, the team recently downgraded its rating to "hold."
Meanwhile, Alibaba is busy preparing for China's biggest online shopping day of Nov. 11, better known as Singles Day. Andria Cheng, editor at large for eMarketer Retail, noted that "Alibaba's Singles Day shopping event no doubt will hit another record in sales this year." Alibaba said last year that it broke its own record for that day, with gross merchandise volume topping 120 billion yuan. Cheng also sees the global marketing hype around the world bringing Alibaba record cross-border demand.