[Alibaba and its largest rival, a Chinese games-and-social-media conglomerate called Tencent Holdings, have seen their shares surge over the past year as they report strong profits that suggest Chinese consumers still have a desire to spend. Their rise mirrors the surge in shares in the biggest technology names in the United States, like Apple, Google and Facebook.]
By Paul Mozur
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Alibaba’s
headquarters on the outskirts of Hangzhou, Zhejiang province, China.
Alibaba’s
chief financial officer, Maggie Wu, said on Thursday that the
company
expected revenue for the year that will end next March to
grow
between 45 percent and 49 percent.
Credit
Chance Chan/Reuters
|
The Alibaba Group signaled on Thursday that
for all the global worries about China’s rising debt and bloated state
industries, its economy still enjoys a strong pillar of support: online
shoppers.
Alibaba, the Chinese e-commerce giant, said
Thursday during an investor conference that it expected revenue for its current
fiscal year to grow at a much higher rate than analysts had forecast. It cited
expectations for growing sales volumes on its online marketplaces and, even
more strongly, surging demand by merchants for its digital ad space.
Alibaba’s shares, which trade in New York,
surged nearly 12 percent in premarket trading early Thursday, continuing a run
that has taken them to their highest levels since the Chinese company raised
$25 billion three years ago in what was then the world’s largest initial public
offering.
Alibaba’s forecast illustrates the power of
China’s vast and cutting-edge online culture. Though the government strictly
controls political content and entertainment, China has evolved into the
world’s largest group of internet users who comfortably shop, transfer money,
invest and even rent bicycles with the tap of a smartphone. Online shopping has
been a bright spot as economists worry about China’s rising corporate debt and
overcapacity in its old-line industries like steel and glass.
China’s digital growth will not last forever,
though, and even Alibaba’s numbers show that China’s online world cannot
counter the laws of diminishing returns. Still, the ranks of China’s online
shoppers grew nearly 13 percent last year to a considerable 467 million,
according to official statistics, showing the already vast market is still
growing.
Alibaba and its largest rival, a Chinese
games-and-social-media conglomerate called Tencent Holdings, have seen their
shares surge over the past year as they report strong profits that suggest
Chinese consumers still have a desire to spend. Their rise mirrors the surge in
shares in the biggest technology names in the United States, like Apple, Google
and Facebook.
During a speech at the conference, Alibaba’s
chief financial officer, Maggie Wu, said that the company expected revenue for
the year that will end next March to grow between 45 percent and 49 percent.
That is slightly down from the 56 percent growth the company registered in
fiscal year 2017, which ended in March. Still, it nonetheless shows the company
is expecting to keep growing at a fast pace in the coming year.
Although Alibaba is China’s largest
e-commerce company, it does not directly sell the goods on its websites.
Instead, it provides marketplaces where anyone from small village dwellers to
big global brands can set up online shops and sell to Chinese customers. To
reach those customers, Alibaba also offers online advertising space.
That space is looking increasingly valuable.
During her speech, Ms. Wu said the company
got about 60 percent of its revenue from its Alimama advertising platform,
which works as an auction site on which Alibaba’s many vendors can bid for
advertising space on its sites. On that platform the price for ads has been
rising as a result of market forces, Ms. Wu said.
At times in the past, Alibaba’s merchants,
many of which are small businesses that duke it out with other small sellers on
the company’s Taobao marketplace, have complained about increases in what the
company would charge for promotions. Such criticism even led to several
protests at the company’s offices.
Still, the pricing of online ad space in
China has long lagged behind what it can cost in more developed markets in
Europe and the United States. Alibaba’s high revenue growth target shows that
gap may be starting to close, which is good news for a company that is in essence
an advertising company.
“We’re not holding a gun to merchants’ heads
to make revenue grow,” Ms. Wu said.
“It’s all determined by merchants,” she said.
“They bid for every single click.”
The big revenue growth target is important
because investors have been concerned about the slowdown in the total value of
the merchandise Alibaba sells on its online platforms. That figure, which
Alibaba calls gross merchandise value, grew 22 percent in 2017, a figure
smaller than what the company had posted in recent years.
