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Home / Business / China's economy is under pressure. Why is sales of Alibaba increasing?

China's economy is under pressure. Why is sales of Alibaba increasing?



Dark clouds are now spreading over the Chinese economy. An escalating trade war between the US and China threatens exports. China's stock markets are in radio. The yuan loses ground against the dollar. The New York Times relates that the nation's middle class is plagued by a "consumer demotion." So how do you explain the sunny financial results of the Chinese e-commerce giant in the first quarter of 2018? Alibaba?

On Thursday, the company listed on the New York Stock Exchange, which operates China's two largest ecommerce platforms, reported total revenue for the three months ended June 30, up 61% to $ 12.2 billion Dollar has risen. This is BABA's best quarterly performance in four years, surpassing the growth rates of all its peers in the so-called FAANG + BAT Group (including America's Facebook, Amazon, Apple, Netflix, Google Mother Alphabet and China's Baidu, Alibaba and Tencent). 1

9659002] Alibaba said most of the growth came from its online shopping sites, led by Taobao and T-Mall, which generate more than 80% of total revenue. The company's top division also benefited from the expansion of newer businesses, including digital media and entertainment, where quarterly revenue increased 46% to $ 903 million, and cloud computing, where quarterly revenue was nearly $ 710 million doubled.

Vice President Joe Tsai, in a call with investors, said Alibaba's buoyant revenues reflect the fact that China's middle class continues to grow, and that consumers have substantial savings and easier access to credit. A trade war would not prevent this growth, he argued, because Beijing will do anything to shore up domestic consumption. And if customs duties make goods from the US more expensive? Chinese consumers can shop from other countries. "The world is a big place," he said.

True enough. But many are wondering about Alibaba's ability to remain profitable in this large world – doubts that were not dispelled by a 40% decline in its quarterly net income. Alibaba described the decline as "one-off" due to an increase in value of Ant Financial, whose subsidiary increased the cost of shares to Alibaba employees for financial payments. Without this one-off impact, net income would have risen 35% year-on-year.

Bloomberg Columnist Tim Culpan does not buy it. He argues that for Alibaba "exceptions" become the new rule. And all in all, these "disposable items" have a recurrent pattern: they are at the expense of profit. A good example: Alibaba said Thursday it will work with SoftBank to pump more than $ 3 billion in Ele.me, the food transportation arm acquired in April, and to link operations with Koubei, a business that connects restaurants to the Internet. to merge. This consolidation follows a similar move last September when Alibaba took control of Cainiao Smart Logistics Networks, an unprofitable delivery business, for $ 800 million and vowed to spend billions on expanding its shipping network. The company has also acquired the Intime Retail Group, which operates a number of department stores and shopping centers, has acquired a large stake in the Suning Commerce Group, an electronics retailer, and is seeking to expand its chain of Hema supermarkets. Going out to eat, sell food and act as a delivery center. Alibaba calls this his "New Retail" strategy; The goal is a profit scale to fend off competitors and to establish as many "touch points" with Chinese consumers as possible. But as it evolves from an asset-lite digital retailer to a brick Mortar colossus, Alibaba's top and bottom lines are pulled in different directions.

On Thursday, CEO Daniel Zheng promised that Alibaba "will continue to invest in strategic businesses opportunities and innovations to secure our competitive advantage and long-term growth." For investors, the question is whether these "business opportunities" are truly strategic or whether the fact that the Chinese e-commerce market is beginning to mature, is veiled.

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