Alibaba defies China's slowdown amid mobile-spending shift

[HONG KONG] Alibaba Group Holding defied China's economic slowdown by capturing the shift of consumer spending to smartphones and expanding advertising on mobile devices.

Alibaba had 346 million monthly average users on mobile devices in the quarter ended Sept 30, up 59 per cent from a year earlier. The e-commerce company is making more money on each mobile purchase by offering better advertising opportunities for merchants. Alibaba recorded 2.39 per cent of the value of its mobile transactions as revenue in the quarter, up from 1.87 per cent a year ago.

"This has little to do with the Chinese consumer but rather Alibaba improving its ability to allow sellers to advertise on mobile screens," said Gil Luria, analyst at Wedbush Securities in Los Angeles.

Sales jumped 32 per cent to 22.2 billion yuan (S$4.9 billion) in the three months ended September, the company said Tuesday, beating analyst estimates. Alibaba's shares climbed 4.1 per cent to US$79.44 at the close in New York, reaching the highest closing price since Aug 10. The stock is heading for its best month since the initial public offering.

Alibaba forged partnerships with electronics chain Suning Commerce Group Co, expanded its range of merchandise and offered new cloud-based services to stoke transactions and limit the impact of an economy heading for its slowest growth in 25 years. Increased promotions on Tmall.com and Taobao Marketplace under new CEO Daniel Zhang drove sales ahead of next month's Singles' Day, the country's biggest shopping event.

"The results were surprising because people were expecting weak performance due to an overall slowdown in China's economy," said Li Yujie, an analyst at RHB Research Institute Sdn in Hong Kong. "People's expectations were pretty low." Net income climbed to 22.7 billion yuan after recognizing an 18.6 billion-yuan gain in the market value of its stake in Alibaba Health Information Technology, a separate publicly traded company.

Deal Spree Even as China's economic growth heads toward a slower- growth era not seen since the late 1970s, billionaire Chairman Jack Ma is pushing ahead with acquisitions. The company has participated in almost US$15 billion of deals announced this year, about triple the number for all of 2014, according to data compiled by Bloomberg.

"When you look at the individual Chinese consumer, they're very liquid," Vice Chairman Joseph Tsai told analysts on a conference call. "A temporary setback in the macroeconomy is not going to affect their consumption pattern in a fundamental way." The company this month offered US$4.6 billion for the rest of Youku Tudou Inc. to stream more video content to Chinese Internet users through control of the YouTube-like site. Buying Youku is part of Alibaba's plans to reach a bigger share of the 594 million Chinese who access the Internet from mobile devices and are hungry for online content.

Alibaba is benefiting from a years-long shift in China's economy toward consumption and services, after exports and manufacturing drove more than three decades of expansion averaging 10 per cent a year. While the economy as a whole has slowed in recent months, non-manufacturing industries remain firmly in growth mode. Services accounted for about 51 per cent of gross domestic product in the first nine months of this year, compared with 44 per cent five years ago.

Alibaba is investing more in online-to-offline services, or 020, in competition with rivals Tencent Holdings Ltd and Baidu Inc. That includes investing in Didi Kuaidi, China's biggest taxi-hailing application, and backing the merger of group-buying platforms Meituan.com and Dianping.com.

"Alibaba is a very, very aggressive company," Ted Leonsis, a venture capitalist who is also chairman of Groupon Inc., said on Bloomberg Television. "They're doing a really, really good job. I would be buying Alibaba right now." Mobile Monetization Gross merchandise volume in China, Alibaba's largest business, rose 28 per cent to 713 billion yuan in the quarter. Mobile accounted for 62 per cent of GMV, with revenue almost tripling to 10.5 billion yuan. Singles' Day on Nov 11 targets bargain shoppers, and the promotion last year had five times the sales of Cyber Monday in the US.

"We are winning in mobile and remain focused on our top strategic priorities, including internationalization," Mr Zhang, the chief executive officer, said in a statement.

While mobile platforms help capture the millions of consumers shopping on smartphones and tablet computers, the smaller screens typically generate less advertising revenue.

Alibaba also said the Securities and Exchange Commission concluded a probe into the company and won't be recommending an "enforcement action." The investigation started in February after a Chinese regulator criticized Alibaba's business practices.

International sales rose 14 per cent to 1.8 billion yuan and revenue from cloud computing more than doubled to 649 million yuan as the Alicloud unit added data centers in the US and plans expansion in Europe.

"We're not even at the first pitch of the first inning" when it comes to cloud computing, Mr Tsai said.

BLOOMBERG