Alibaba Beats Quarterly Revenue Estimates, Stocks Rise

(Reuters) – China’s Alibaba Group Holding Ltd reported better-than-expected 40% second-quarter revenue growth on Friday, driven by strong growth in e-commerce and cloud computing.

The results come as the company prepares for its annual Singles’ Day shopping promotion in November and increasingly competes with e-commerce site Pinduoduo Inc for sales in smaller cities in China.

The US-listed company’s shares rose more than 2% to $180.25 before the bell.

Alibaba makes money mainly by selling advertising and promotional services to third-party merchants who list products on Taobao and Tmall, two of its e-commerce sites.

Total revenue rose to 119.02 billion yuan (13.06 billion pounds) in the second quarter ended September 30 from 85.15 billion yuan a year earlier. Analysts expected revenue of 116.8 billion yuan, according to IBES data from Refinitiv.

Sales of the company’s e-commerce division increased by about 40% to 101.22 billion yuan, while its cloud computing business saw its revenue increase by 64% to 9.29 billion yuan.

The company’s net income attributable to common shareholders rose to 72.54 billion yuan from 20.03 billion yuan a year earlier, due to a one-time gain related to its stake in Ant Financial.

Alibaba, China’s largest e-commerce company and rival of JD.com Inc are looking to diversify as online sales decline amid saturated markets in China’s biggest cities and consumer confidence takes a hit from the ongoing US-China trade war.

For Alibaba, this meant doubling its ability to reach consumers in China’s second- and third-tier cities.

Over the past few years, upstart e-commerce service Pinduoduo has attracted many first-time online shoppers thanks to its crowd-pleasing, group-buying app.

To compete, Alibaba launched a deal-oriented app called Taobao Tejia and also made its existing Juhuasuan group-buying service available to customers.

On an earnings call with analysts, Maggie Wu, Alibaba’s chief financial officer, highlighted how the company’s wide range of apps allows it to reach a wide range of consumers.

“The average revenue per user (ARPU) in lower-tier cities is not as low as people imagine,” Wu said. “I think we have addressed the different demands and levels of consumers very well in our taobao apps,” she added.

In the same conversation, Alibaba CEO Daniel Zhang also referred to the company’s live streaming efforts, in which sellers use third-party services such as Douyin and Kuaishou to promote products on Taobao and Tmall, as “a new avenue for swimming for the company.

Zhang said that more than 50% of sellers on Tmall are already using live streaming to reach customers, and added that while the feature has not yet been leveraged to monetize the feature, there will be updates on the broader business strategy soon.

Excluding items, Alibaba earned 13.10 yuan per American depository share. Analysts were expecting 10.65 yuan per ADS, according to IBES data from Refinitiv.

(Reporting by Akanksha Rana in Bengaluru and Josh Horwitz in Shanghai; Editing by Saumyadeb Chakrabarty and Elaine Hardcastle)