Alibaba's third quarter revenue rose 9% to $30.8bn. Growth was helped by low to mid-single digit growth in the group's Chinese retail businesses. This reflected better advertising spending from customers as well as consumer electronics and appliances. There was also a strong performance from the group's logistics business.
There was a 34% increase in operating profit to $4.6bn, which was worse than expected. Free cash flow rose 27% to $6.2bn, helped by the improved profitability.
The group has said it won't proceed with a full spin-off of its cloud intelligence company.
Alibaba announced it will return $2.5bn to shareholders via dividends this financial year.
The shares fell 8.2% in pre-market trading.
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Our view
Performance has failed to inspire Alibaba investors. There are a few things to chew on.
Alibaba is China's largest e-commerce business, and the economic alarm bells are well and truly ringing in the land of the red dragon. Other challenges to note are stiff competition in the sector and a government tech-crackdown.
The path to a sustained demand rebound is unclear. And that's partly why the group's making inroads to spin off various businesses, which could unlock value. This includes separate IPOs of its grocery and logistics divisions. We are however relieved to hear that the cloud business is no longer on the auction lot. This would have marked the loss of a growth opportunity. The wider attempts to streamline the business are still the right moves in our view.
The Chinese giant is responsible for multiple businesses across e-commerce, digital media and entertainment, logistics and cloud computing, to name just a few.
The biggest segment, by some way, is China Commerce. Which includes Taobao, China's largest shopping website, and TMall, which sells higher-end and branded goods. Recent marketing initiatives such as the 6.18 Shopping Festival have helped to revive fortunes, but we have some concerns as to how long this can offset the impact of a faltering economy. Cost cutting has gone some way to improve profitability but most of the recent savings have been made in product development, not an area we believe should be neglected for long if it wants to maintain its competitive edge.
Alibaba also houses the impressive AliExpress, which connects global consumers to a vast marketplace, where they can buy directly from manufacturers all over the world. We think the international markets represent an exciting opportunity for the Group. It's been doubling down efforts to expand in South Asia, an area with good growth potential. And so far, the Group's doing a good job at expanding overseas.
A shining positive is Alibaba's cash generation - it has billions of free cash flow pumping round the business each quarter. This gives it enormous flexibility in tough times, as well as the ability to throw money at expansion efforts. It also allows potential for substantial share buybacks but remember no shareholder returns are guaranteed.
If international expansion efforts take off at the required speed, Alibaba could unlock enormous growth, but that remains a very big 'if'. It's still dwarfed by the Chinese operations, which we think will be a bigger driver of sentiment in an increasingly challenging short-term. Another potential catalyst to look out for is movement, if any, in external fundraising efforts from the newly independent business units.
Alibaba key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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