Alibaba raises revenue forecast on strong e-commerce sales

Chinese internet giant revises its full-year forecast upwards to a 53 percent revenue growth, following a strong third-quarter showing that saw record sales from the Singles Day online shopping festival.
Written by Eileen Yu, Senior Contributing Editor

Alibaba Group has reported a 54 percent year-on-year revenue growth to US$7.67 billion for the quarter, ended December 31, fuelled by record sales from China's Singles Day online shopping festival.

The Chinese e-commerce operator said revenue from its core commerce business, which included its Taobao and Tmall online platforms, climbed 45 percent to US$6.71 billion (46.58 billion yuan). It pointed to record sales from the November 11 shopping event last year when it clocked US$17.4 billion (120.7 billion yuan) in gross merchandise value, of which 82 percent was transacted on mobile.

Alibaba Group CEO Daniel Zhang attributed the strong showing to the company's "new retail" strategy, where it tapped big data to create a hybrid online and offline experience for its 493 million monthly mobile active users. "This retail transformation will make it even easier and more efficient for brands and retailers to engage with these consumers anywhere, anytime," Zhang said.

The company's e-commerce business accounted for 87 percent of its total revenue for the quarter, compared to 92 percent during the same quarter 2015.

On the back of the robust quarterly results, the company said it was raising its previous 2017 fiscal year revenue growth forecast to 53 percent, from 48 percent. CFO Maggie Wu said: "This quarter, we generated US$4.9 billion in free cash flow on a non-GAAP basis, enabling us to continue investing in growth areas globally, including cloud computing, digital media, and entertainment and innovation initiatives, as well as core commerce."

During its earnings call, Zhang said the company's cloud business was in a "unique position" to tap the technology it had built out for its e-commerce platforms to better support customers outside the e-commerce industry.

For the quarter, Alibaba recorded a 115 percent year-on-year increase in cloud revenue to US$254 million (1.76 billion yuan), fuelled primarily by a bigger base of paying customers that doubled year-on-year to 765,000, and from 651,000 the previous quarter. The company also noted an increase in consumption of its cloud computing services, which included content delivery and database services.

In a recent interview with ZDNet, Alibaba Cloud's global general manager Ethan Yu said its cloud platform supported a record 175,000 transactions per second, at peak, during the November 11 shopping event. This would not have been possible without its middleware, which were designed to provide the flexibility and enable its platform to scale out, Yu said, echoing Zhang's comments on Alibaba's e-commerce advantage.

Yu also had pointed to the company's focus on developing "internet-ready middleware", which stemmed from the need to support its e-commerce operations. "For internet companies such as Alibaba itself, especially in the e-commerce space, we need more elasticity to handle [sporadic spikes in] traffic," he said. "Transactions sometimes come in short [bursts], not long, so very often you want a scaling-out mechanism and you want to do that in a much cheaper way, using commodity boxes. This is missing in the IT world today."

Despite the triple-digit revenue growth, its cloud computing business reported an operating loss of US$49 million (339 million yuan) for the quarter, though, this was narrower than the 712 million yuan from the same quarter 2015.

Cloud revenue accounted for just 3 percent of its overall revenue for the quarter, compared to 2 percent in the same quarter 2015.

Digital media and entertainment accounted for 8 percent of total revenue, generating US$585 million (4.06 billion yuan). This segment included advertising and subscription revenue generated from Youku Tudou and mobile internet services from Alibaba's UCWeb businesses.

Innovation initiatives and other services, which included its AutoNavi and YunOS businesses, accounted for the remaining 2 percent of total revenue, clocking US$122 million (845 million yuan) for the quarter.

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