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Shrinking Margins Send Alibaba Valuation Down by $30B

Despite strong sales and income during the fourth quarter, Alibaba’s operating margins, which decreased from 39 percent to 31 percent year-on-year, sent the company’s valuation spiraling down by $30 billion.

Alibaba shares fell by 5.9%, the largest decline since June 2016, according to Bloomberg.

The online giant also announced Thursday that it will take a 33 percent stake in Ant Financial, which owns Alipay. The online payment business was once part of Alibaba before it was spun off. In recent months, Alipay has shown weakness in the face of surging competitors like WeChat. Alibaba will exchange intellectual property in lieu of cash to fund the transaction. Analysts predict the deal will pave the way for an Ant Financial IPO.

Alibaba adjusted its 2018 revenue guidance up to 55 percent to 56 percent from its previous outlook which was 49 percent to 53 percent.

Sales: The company reported revenue was up 56 percent during the quarter to 83 billion RMB ($12.8 billion). The increase was fueled by a 104 percent jump in its cloud computing business and a 57 percent increase in its core commerce.

Taobao mobile monthly active users reached 580 million in December, an increase of 31 million users from the previous quarter, which Alibaba attributes to its robust application of AI and continued investment in machine learning.

Apparel helped Tmall achieve a 43 percent boost in gross merchandise volume (GMV) during the quarter. The retailer’s 11.11 shopping festival also helped fuel the growth with a record 168.2 billion RMB ($25.9 billion) GMV.

The company’s New Retail initiative, which focuses on partnerships and innovation, pushed forward with the growth of the Hema grocery chain and a strategic alliance with Sun Art Group, which will equip 440 hypermarkets and supermarkets nationwide with omnichannel technology.

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Finally, the company’s voice assistant, Tmall Genie, which launched in July, surpassed one million units sold.

Revenue: Net income leapt to 23.3 billion RMB ($3.6 billion) from 17.2 billion RMB ($2.7 billion) during the prior year period, representing a 36 percent increase, while adjusted earnings before interest, taxes, depreciation and amortization reached 36.2 billion RMB ($5.6 billion), a 34 percent increase from 27 billion RMB ($4.3 billion) during the same timeframe in 2016.

CEO’s Take: “Alibaba had another great quarter driven by the continued strength of the Chinese consumer and the wide and innovative range of services we provide for merchants and consumers,” said Alibaba Group CEO Daniel Zhang. “We are excited by the continued momentum in New Retail, which came to life during another record-breaking 11.11 Global Shopping Festival. We expanded the scale and footprint of our New Retail initiatives with the vision of delivering true convergence of the online and offline consumer experience through mobile and enterprise technology.”