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Alibaba profit up 37%, shares rise more than 6%

The group’s net profit reached ¥33.1 billion in the December quarter, more than the ¥22.1 billion yuan it had projected and the ¥28.8 billion estimate in a Bloomberg poll.

Growth in cloud computing and other business segments helped Chinese ecommerce giant Alibaba post a 37% net profit in the last quarter, Alibaba said in its earnings report on Wednesday. Although shares rose by more than 6% following the positive numbers, the double-digit growth in profit was still below market expectations.

The group’s net profit reached ¥33.1 billion in the December quarter, more than the ¥22.1 billion yuan it had projected and the ¥28.8 billion estimate in a Bloomberg poll.

While its revenue rose 41% to ¥117.3 billion, it was the slowest pace in more than two years. The firm had projected for a ¥119.4 billion in sales for the quarter. Analysts in a Bloomberg poll had forecast a 44% rise in sales.

Although the growth would be considered as spectacular to some internet companies, Alibaba is an internet giant that is accustomed to growth rates of 50% or 60%.

In November, the group slashed its sales forecast for the full financial year, which ends in March, to between ¥375 billion and ¥383 billion, which was at most a 53% increase from a year ago. The forecast is lower than the 60% revenue growth previously anticipated.

Alibaba’s cloud revenue rose 84% in the December quarter, partly due to the decision to take control of delivery network Cainiao, video platform Youku, and meals-on-demand service Ele.me.

Alibaba’s chief executive Daniel Zhang said the group’s growth is driven by the power of Alibaba's cloud and data technology that ‘helps expedite the digital transformation of millions of enterprises’.

The results propelled the shares of New York listed Alibaba to gain more than 6%, to US$166.82.

Tougher market conditions for ecommerce players in China as economy slows

Analysts are expecting consumer spending for this year to slow and tougher business conditions are expected for Chinese ecommerce firms due to a weakening economy.

China’s economy posted a 6.6% expansion in 2018, the slowest in 28 years, as factory activity and domestic demand tapered.

Alibaba derives more than 90% of its sales from China and any signs of a worsening Chinese economy is very likely to impact the Chinese-dependent company.

The tech giant has been expanding into overseas markets and looking at new forms of business models such as ‘new retail’, which uses data taken online to optimize in-store sales and service.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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