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Alibaba’s Q1 Earnings Report Exceeded Expectations, Singles Day a Boon

Alibaba, China’s e-commerce giant, doesn’t need to rely on the phrase “open sesame” any time soon. The company, whose name is reminiscent of the character in a centuries-old Arabian tale who finds a hidden treasure, gave its first report to investors since its historic $25 billion initial public offering in September.

Quarterly earnings grew by 15 percent to $1.1 billion on a 54 percent rise in revenue to $2.7 billion. These results got a nod from Wall Street, with many analysts praising the strong revenue growth despite what one analyst called a “noisy” bottom line, where net income dropped 39 percent compared to the prior year. The decrease was attributed to one-time expenses associated with stock awards to employees and executives distributed prior to the IPO, incurred in an effort to reward staff for good performance. Sanford Bernstein analyst Carlos Kirjner condensed the company’s performance as follows in an article for the Wall Street Journal, “A lot more people bought a lot more stuff. These are the key metrics, and the rest are details.”

Alibaba’s sizeable investments in mobile commerce initiatives took a bite out of second quarter profits, but those investments seemed to have paid off. During an analyst call after the earnings announcement, Alibaba’s Executive Vice Chairman Joseph Tsai said the company added 29 million mobile users last quarter. He added, “With more than one-third of our China retail business on mobile, Alibaba is very much a mobile company.” At a time when everyone is fighting for a larger piece of the online consumer pie, the increase is a boon for the company.

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Founded 15 years ago by Jack Ma, a former teacher, Alibaba is the third largest e-commerce company after Amazon and eBay, and is often described as a hybrid of the two. The company commands roughly 85 percent of China’s e-commerce business, but was largely unknown outside of China until its IPO. It doesn’t sell its own goods, but links buyers and sellers in what the company refers to as an “ecosystem platform approach.”

And as evidenced by its performance, it is a successful system: During the last fiscal year, there were 279 million active Alibaba users in China who collectively drove $296 billion in gross merchandise volume. The company saw 14.5 billion orders taken and 6.1 billion packages shipped in a 12-month period, with users shopping on average once per week.

The company’s payment arm, Alipay, is also a sizeable business in China, where credit cards have yet to take off. The payment system offers secure shopping as well as a rating system for sellers and buyers. With the release of ApplePay last month as well as the spin-off of PayPal from eBay, payment system news has been buzzing.

On Nov. 6, AliExpress, a global online marketplace operated by Alibaba Group, announced that it will now offer Mexican consumers the ability to pay with local currency through MercadoPago, the leading online payment platform in Latin America. Given the approaching holiday shopping season, this is a significant and timely alliance which will allow Mexico’s 120 million consumers to easily purchase goods.

In early October, Alipay unveiled ePass, which will enable Chinese shoppers to buy directly from American websites. This will not only smooth out cumbersome cross-border logistics, but will also help participating brands target their desired Chinese demographic and give them access to hundreds of millions of shoppers. Last year, Alibaba also invested $200 million in ShopRunner, a members-only e-commerce service business that is hoping to win consumers over through strong retail partnerships. Through Alibaba’s ePass, ShopRunner plans to facilitate Chinese consumers’ purchases from U.S. partner e-commerce sites.

The timing of the ePass launch is also good for U.S.-based retailers who want to participate in “Singles Day,” China’s shopping festival which began in 2009 and occurs annually on Nov. 11. On Singles Day, unmarried Chinese are encouraged to shop online and merchants attract them with various bargains and discounts. It is the country’s biggest sales day of the year and, historically, has also been a huge day for Alibaba sales.

In a press release issued last week, the company announced that sales for the day totaled $9.3 billion, of which nearly 43 percent were made on mobile devices. This represents a $3.5 billion increase over last year’s results. Of total sales, $2 billion occurred within the first hour. According to a company statement, Alibaba said more than 27,000 brands and merchants participated in Singles Day, and the shopping spree was available to consumers in more than 220 countries.