Shares of Chinese e-commerce giant Alibaba climbed 5% in premarket trading Friday after the company reported a 58% jump in quarterly net income, surpassing analysts’ profit expectations despite revenue falling short.
The company credited strong equity investment returns and rapid growth in artificial intelligence (AI) offerings for its stellar bottom-line performance.
Alibaba posted net income of 43.9 billion yuan ($6.21 billion) for the quarter ending September 30, up from 29.7 billion yuan a year earlier. The result beat a forecast of 25.83 billion yuan, according to LSEG data. The company attributed the profit growth to gains from its equity investments, reduced investment impairments, and stronger income from operations.
Revenue for the quarter rose 5% year-on-year to 236.5 billion yuan ($33.7 billion) but fell short of analyst estimates of 238.9 billion yuan. The tepid sales growth reflects the challenges facing China’s e-commerce sector amid a broader economic slowdown, with weak consumer spending in the world’s second-largest economy weighing on results.
“Alibaba’s outlook remains closely tied to the trajectory of China’s economy and evolving regulatory policies,” ING analysts said.
ING highlighted the importance of government stimulus efforts in reviving growth.
Alibaba’s core e-commerce platforms, Taobao and Tmall, reported a modest 1.4% rise in revenue to 98.99 billion yuan, below the forecasted 104.34 billion yuan. However, the company noted improved monetization from these platforms, driven by new service fees and higher merchant adoption of marketing tools.
On a brighter note, Alibaba’s cloud intelligence group delivered a 7.1% revenue increase to 29.61 billion yuan, beating estimates. AI-related revenue surged by triple-digit percentages for the fifth consecutive quarter, underscoring the growing importance of cloud and AI offerings in the company’s portfolio.
The company’s overseas e-commerce ventures, including Lazada and AliExpress, also saw robust performance, with sales up 29% year-on-year to 31.67 billion yuan.
Alibaba’s shares benefited from news of a $4.1 billion share buyback during the quarter, which reduced the total number of shares outstanding by 2.1% since the end of June. The buyback program, combined with the strong profit results, helped the stock bounce off a two-month low.
The stock has gained nearly 17% year to date, outperforming the broader iShares MSCI China ETF, which has risen 16.2%.
Alibaba’s earnings come as Chinese commerce businesses face headwinds from a slowing domestic economy. However, recent signs of improvement, such as better-than-expected retail sales growth in October and a successful Singles’ Day shopping festival, have raised hopes for a recovery in consumer sentiment.
The company highlighted “robust growth” in gross merchandise volume (GMV) during Singles’ Day, with a record number of active buyers contributing to the event’s success.
Looking ahead, Alibaba continues to invest in high-growth areas like AI and cloud computing while navigating challenges in its home market.
“Growth in our cloud business accelerated from prior quarters,” CEO Eddie Wu noted.
He emphasized the potential of AI to drive future revenue streams.
As Beijing rolls out a series of stimulus measures, including a five-year, 1.4-trillion-yuan package, markets will closely monitor Alibaba’s performance as a bellwether for China’s broader economic recovery.
Market Watch and CNBC contributed to this report.
