Alibaba’s results confirm growth, but margins are falling

By Paul Carsten BEIJING (Reuters) – Alibaba Group Holding Ltd’s e-commerce and mobile businesses grew sharply in September, far outperforming rivals and dwarfed by weakening margins and slowing profit growth. The company’s shares rose as much as 3 percent to a record high after the Chinese e-commerce company reported a rapid 49 percent increase in the value of gross merchandise sold. Revenue rose 53.7 percent in the three months ended in September, outpacing Amazon.com Inc’s 20 percent gain in the same period. Alibaba’s first quarterly report since its record $25 billion (£15.63 billion) initial public offering confirmed Wall Street’s expectations for industry-leading growth. Investors have focused on its dominance in China, despite concerns about corporate governance and falling margins. The company indicated that the shopping spree, on which it has spent more than $6 billion since the beginning of the year, may not be over yet as it looks to expand its user base. Earnings before interest, taxes, depreciation and amortization margins fell to a slightly weaker-than-expected 50.5% from 54.4% in the previous quarter. But on Tuesday, investors focused on a 52 percent increase in active users to 307 million – roughly the same number as Americans – and an improvement in its mobile monetization rate to 1.87 percent from 1.49 percent previously. This means that the Chinese company receives a larger percentage of each mobile transaction it handles. The company’s shares rose to a high of $104.96, up more than 50 percent from its debut price of $68. “Results were strong, particularly on the revenue front, with revenue growth accelerating, while financial results were a bit noisy,” said Youssef Squali of Cantor Fitzgerald. Revenue was $2.74 billion compared to expected sales of $2.7 billion, the fastest growth in three quarters. NON-STOP SHOP The company’s investments are aimed at increasing the number of customers and converting them into users of Alibaba’s core e-commerce areas, as well as increasing the number of products and services offered by Alibaba, said Joe Tsai, the company’s executive vice president. Alibaba also said it will invest in new initiatives such as its mobile operating system, location-based services and digital entertainment, although these are long-term projects, he added. The e-commerce giant “will continue to make strategic investments to grow our revenue,” Chief Financial Officer Maggie Wu said on an earnings call with analysts. Mobile revenues were over 10 times higher than in the same period last year and accounted for 22%. all revenues. Gross merchandise volume increased 48.7 percent to $90.5 billion. Mobile GMV accounted for 35.8% of that total, compared to 14.7% in the same quarter of 2013. Non-GAAP net income for the July-September quarter was $1.11 billion, which excludes payroll costs equity and amortization of intangible assets – compared with a consensus estimate of $1.17 billion based on a Thomson Reuters SmartEstimate survey of 21 analysts. Diluted earnings per share were $0.20, while non-GAAP diluted earnings per share were $0.45, up 9.4% year-over-year and in line with Wall Street estimates. However, overall profit margins fell to a two-year low of 18 percent as extraordinary expenses, which the company attributed mainly to stock-based compensation payments of $490 million around the time of the initial public offering, ate into profits. (Reporting by Paul Carsten; additional reporting by Deepa Seetharaman in San Francisco; editing by David Goodman, Elaine Hardcastle, Jane Merriman and Dan Grebler)