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China tech

Alibaba earnings drop on increased investment in new businesses

Chinese online retail leader expands stock buyback plan by 50%

Alibaba's quarterly revenues fell slightly short of analyst estimates.   © Reuters

HONG KONG -- Net profits for Alibaba Group Holding declined 8% last quarter as the Chinese e-commerce conglomerate stepped up investments in new businesses to fend off rivals.

During the April-June quarter, Alibaba reported revenues of 205.74 billion yuan ($31.83 billion), up 34% from the same period last year. This slightly missed the average market estimate of 209 billion yuan, according to a survey of analysts by Refinitiv.

"We are investing our excess profits and additional capital to support our merchants and invest in strategic areas to better serve customers and penetrate into new addressable markets," said Group Chief Financial Officer Maggie Wu in a statement.

The company posted net income by U.S. accounting standards of 42.84 billion yuan while its operating margin narrowed from 23% to 15%.

Wu, though, said that Alibaba would expand its share buyback program from $10 billion to $15 billion "because we are confident of our long-term growth prospects." She said the company had already repurchased $3.7 billion in U.S. share receipts since April.

Alibaba posted a net loss of 5.5 billion yuan a quarter earlier under the impact of a record 18 billion yuan fine from Chinese regulators for anticompetitive practices.

Alibaba shares have been sliding in recent weeks as Beijing has expanded a regulatory crackdown into private tutoring, food delivery and other sectors.

"We are in the process of studying the regulatory requirements, evaluating the potential impact on our relevant businesses," Daniel Zhang, Alibaba's chairman and chief executive, told analysts on Tuesday.

"We will respond positively with actions," he said, adding the new regulations will help foster the healthy development of the internet industry in the long term.

Zhang also reiterated the group's determination to grow new businesses, with a plan to invest all of its incremental profits this year into core areas, such as technology, user acquisition, infrastructure, and programs that help lower merchants' operating costs as well as new initiatives.

Instead of providing more services through Taobao, its flagship superapp with more than 900 million users, Zhang said it will deploy a multi-app strategy to tap into even more customers, especially those in the lower tier cities and rural areas.

"We are working on building a more complete app matrix to better serve the different needs of different consumers," Zhang said. The best example was the launch of Taobao Deals, a budget e-commerce app designed to cater to customers with tighter budgets. The app has accumulated more than 190 million annual active users in just 16 months.

Meanwhile, as China moves to tighten regulations on personal data protection -- which in part led to the removal of mobile apps of ride-hailing giant Didi Global -- Zhang believed the effect on Alibaba's business is limited.

"For Alibaba, digitalization is our core business, and data security is always our core tenet. We pay highest attention to this topic," Zhang said. He added that the company is carrying out a sales compliance checks to fulfill the regulatory requirements.

"Adopting these legislations, is very important and China is not the only country to do this."

Despite the fierce challenge from rivals such as Meituan and Pinduoduo, Zhang said Alibaba will not rely on subsidies to expand its market share -- a commonly used approach to acquire customers in China's internet industry.

"When we plan our incremental investment, we always focus on value creation," Zhang said. "We think that for other companies who are continuously loss-making but still try to enlarge their scale by subsidies, at the end of the day, they have to let the market see the real results."

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