Alibaba

Alibaba reported record sales growth for the fourth quarter but its earnings missed estimates and the businesses outside its e-commerce core failed to turn a profit.

Alibaba’s sales rose about 60% to 38.58 billion yuan ($5.60 billion) in the quarter ended March 31, the biggest quarterly increase since the company’s initial public offering in 2014. Analysts had forecast 36 billion yuan in sales.

Fourth-quarter profit rose 85% to 9.85 billion yuan ($1.43 billion) but non-GAAP earnings of 4.35 yuan (63 cents) missed analysts’ estimates of 4.53 yuan (66 cents) as Alibaba’s operating margin was squeezed by its investments in video content and its consolidation of Southeast Asian e-commerce platform Lazada.

Alibaba’s video content investment is part of its push to find news sources of revenue. It has also launched its own cloud services business but according to The New York Times, the fourth-quarter report shows Alibaba “has a long way to go before it can diversify its business amid expectations that even China’s online sales boom has its limits.”

During the fourth quarter, paying customers for cloud computing rose to 874,000 from 109,000 in the previous quarter, driving revenue growth to 103% year-over-year. Revenue from digital media and entertainment more than tripled while revenue from “innovation initiatives,” including Alibaba’s YunOS mobile operating system, were up 88%.

But each of the three segments also continued to report adjusted EBIDTA losses, led by the 1.71 billion yuan ($249 million) loss of digital media and entertainment.

“The company’s main online video acquisition, Youku Tudou, has fallen behind rivals in users and time spent per user,” the NYT said. “While in the long term it could pay off, in the shorter term heavy investment in content could cut into Alibaba’s margins.”

Alibaba’s robust overall sales reflected the strength of the Chinese e-commerce market, with revenue from the core e-commerce business increasing 47% to 31.57 billion yuan ($4.58 billion).

The results “offer a positive sign for those tracking China’s efforts to transform its economy to rely less on government spending and more on American-style consumption,” the Times said.

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