Coverage: Alibaba reports 61 percent increase in sales

Alibaba Group Holding Ltd., China’s biggest e-commerce firm, topped first-quarter revenue estimates on Thursday, but said investments in its food delivery business would continue to weigh on profits.

Cate Cadell of Reuters had the news:

Revenue rose 61 percent to 80.9 billion yuan ($11.77 billion) in the April-June period, compared with analysts’ average estimate of 80.7 billion yuan, according to Thomson Reuters I/B/E/S.

Net income attributable to shareholders, however, fell 41 percent to 8.7 billion yuan, or 3.3 yuan per share, partially due to one-off costs related to share-based compensation following a fundraising round by Ant Financial, Alibaba’s payment affiliate.

While revenue growth has accelerated since Alibaba’s 2014 stock exchange listing, costly investment in offline retail, logistics and cloud computing has squeezed profit margins – which for Alibaba, are typically well above 20 percent.

In April-June, Alibaba’s gross margin was 11 percent versus 29.2 percent a year earlier, its lowest margin since listing.

Arjun Khapal of CNBC.com reported that the company invested $3 billion in its food delivery business:

Ele.me, the food delivery business owned by Alibaba, and Koubei, have been merged and received $3 billion in funding from the Chinese e-commerce giant and SoftBank, the companies announced Thursday.

Alibaba said in its earning statement that Ele.me would be merged with Koubei, an affiliate company that focuses on bringing local businesses online by providing payment and other technology services. Both firms would sit under a new holding company.

“As a result of this reorganization, subject to closing conditions, we will consolidate Koubei, which would result in a material one-off revaluation gain when the transaction closes,” Alibaba said.

It’s unclear whether the investment from SoftBank is coming from its $100 billion Vision Fund. A spokesperson for SoftBank declined to comment.

Krystal Hu of Yahoo Finance reported that the company is well-positioned in a U.S.-China trade war:

Alibaba said it’s well-positioned as trade tension escalates because it can source products outside the U.S. Amid trade disputes, China has been accelerating its efforts to reduce its reliance on investments and exports. That shift could further boost Alibaba’s core retail business.

President Donald Trump’s tariffs have raised concerns among investors about Alibaba’s global expansion. Rather than selling directly to American consumers, Alibaba’s focus in the U.S. market is to help U.S. businesses reach consumers in China. For instance, just last week, Kroger set up its flagship store using Alibaba’s Tmall platform, to sell everything from nuts to organic chips to China’s middle-class consumers.

Some of the products could be subject to extra duties in tit-for-tat tariffs between the Washington and Beijing. The added cost may put some price pressure on Kroger and many other smaller U.S. businesses, making them less appealing to Chinese consumers.

“If U.S. goods become too expensive due to tariffs, Chinese consumers can shift to domestic producers or imports from other parts of the world in terms of our international expansion,” said Joe Tsai, executive vice chairman of Alibaba, on Thursday’s earnings call. “The world is a big place.”