Alibaba shares rally 3% on robust quarterly revenue growth

Alibaba Group Holding Ltd., China’s biggest e-commerce company, reported its fastest pace of growth in more than four years in first fiscal quarter ended June 2018, as the e-commerce giant’s investments in arenas from cloud computing to entertainment carved out new avenues of income.

Revenue at climbed 61 percent to 80.9 billion yuan ($11.8 billion) in the three months ended June, matching the average of analysts’ estimates. Net income slid 41 percent to 8.7 billion yuan, topping the 7.6 billion yuan projected after taking into account an increase in the valuation of affiliate Ant Financial, which boosted the expense of shares awarded to employees.

Alibaba shares were up about 3 percent in pre-market trade but have been under pressure in recent months amid a broader sell-off in Chinese stocks over concerns about the impact of the U.S.-China trade war. Shares hit a record high close of $210.86 on June 14, but have declined about 15.6 percent since. That equates to an $81.3 billion fall in market capitalization or value. The stock is still up just over 3 percent year-to-date.

Alibaba’s core commerce business, which focuses on its online shopping sites Tmall and Taobao, is still the company’s biggest unit, accounting for around 86 percent of revenues. Core commerce revenues came in at 69.19 billion yuan, just below analyst expectations of 70.49 billion yuan. This represented a 61 percent year-on-year rise.

The Chinese titan said an increase in monthly active users of its Taobao app and its “new retail strategy” helped drive growth. New retail includes its physical stores called Hema, as well as the food delivery service Ele.me that Alibaba now owns.

Alibaba has tried to bolster the division by striking partnerships with big U.S. consumer brands. Earlier this month, luxury jeweler Tiffany & Co said it would begin selling products on Alibaba’s Tmall site. And Kroger said it would sell some products on Tmall.

But Alibaba is not just an e-commerce player. It has been pushing its cloud business in recent years, and while still a small part of overall revenues, the growth has been huge. Cloud computing revenues totaled 4.7 billion yuan, a 93 percent year-on-year rise.

The company has opened new data centers around the world and launched new products in key markets like Europe to try to boost market share and revenues.

“The exceptional growth across our major segments of core commerce, cloud computing and digital media and entertainment validates our strategy of investing in customer experience, product, technology and infrastructure for the future,” Maggie Wu, chief financial officer at Alibaba, said in a statement Thursday.

Investors will be looking closely at the company’s operating margin, which dipped to 10 percent in the three months to the end of June, from 15 percent in the previous quarter, and 35 percent in the same period last year. The falling margin, which could continue to remain pressured, is due to the rapid investments Alibaba is making in new areas.

Alibaba said the margin dip was due to “share-based compensation expenses related to Ant Financial share-based awards granted to our employees as the fair value of such awards increased significantly during the quarter ended June 30, 2018.”

Ant Financial is the Alibaba affiliate that runs the payments service Alipay. Alibaba owns a stake in the company.

Earlier this year, Alibaba increased its stake in Singapore-based online retailer Lazada. And in April, it acquired food delivery platform Ele.me for an undisclosed fee. Alibaba said that margins could continue to be squeezed.

“As many of our newly developed and acquired businesses have different cost structures, we expect that our margin will continue to be negatively impacted by these businesses and the accounting treatment of revenue recorded on a gross basis,” Alibaba said in the earnings release.