(Bloomberg)—Alibaba Group Holding Ltd. predicted a surprise acceleration of sales as the Chinese e-commerce giant unleashes spending to sustain growth in cloud computing, logistics and supermarkets.
The company expects revenue to surge 60% in the year ending in March, boosted by its purchase of food delivery startup Ele.me and transport business Cainiao. Even without those acquisitions, Alibaba sees sales rising 50%, ahead of the 42% projected by analysts.
Billionaire founder Jack Ma’s deal spree is taking the Hangzhou-based company into more of the offline world, giving it a logistics business, a chain of supermarkets and a fleet of couriers bringing meals to the front doors of users. While that’s helped make Alibaba less reliant on the Chinese online marketplaces that generate most of its sales, it has come at a cost, with its operating margin shrinking 10 percentage points in the March quarter. On Friday, executives emphasized they’ll continue to spend to grow market share and keep growth humming—potentially at the expense of profitability.
“The results were very strong, it was much better than people were expecting,” said Julia Pan, a Shanghai-based analyst at UOB Kay Hian. “People might be less concerned about the margin compression now because of Alibaba’s better-than-expected top-line guidance.”
Alibaba also reported fourth-quarter sales and earnings that topped estimates. Revenue rose 61% to 61.9 billion yuan ($9.73 billion) in the three months ended March, compared with the 59 billion-yuan ($9.27 billion) average estimate. Net income fell 29% as spending ballooned.
Its shares stood largely unchanged in pre-market trading in New York. Alibaba had gained 5.8% this year through Thursday compared with a 3.3% decline for the NYSE Composite Index.
“The margin structure is completely different, its quality of earnings is dropping,” said Steven Zhu, an analyst with Pacific Epoch. And “its core business is going through deceleration.”
The company’s deals are part of Ma’s ambition to revamp a $4 trillion retail sector, a vision echoed by Amazon.com Inc.’s Jeff Bezos via the acquisition of Whole Foods Market Inc. Arch-foe Tencent Holdings Ltd. has also invested in a slew of supermarkets and retailers in recent months. But Alibaba on Friday signaled its willingness to beat rivals back. “We’re going to be extremely competitive,” vice chairman Joseph Tsai said on a conference call.
Alibaba has been pushing to revamp bricks-and-mortar retailing with technology, bringing its skills in ordering, marketing and fulfillment to supermarkets and other stores in China. It’s also taking renewed steps overseas by taking control of Lazada Group SA to provide an e-commerce platform across Southeast Asia. The company plans to keep spending as it seeks to fend off JD.com Inc., which is backed by Tencent.
In the March quarter, sales from core commerce rose 62% to 51.3 billion yuan ($8.06 billion) while cloud unit revenue more than doubled to 4.4 billion yuan ($691.4 million). The digital media and entertainment unit boosted sales 34% to 5.3 billion yuan ($832.9 million). It reported adjusted earnings per share of 5.73 yuan ($0.90) versus the 5.5 yuan ($0.86) average estimate.
“New Retail, Cainiao, Lazada, Ele.me: we’re going to continue to expand our business by investing,” chief financial officer Maggie Wu said. “Having this new retail kick in and becoming more important, our margin structure may shift.”
Alibaba owns and operates Taobao and Tmall, which hold the No. 1 and No. 2 spots on the Internet Retailer 2018 Online Marketplaces. JD.com holds the No. 5 spot. Lazada is No. 17.Favorite