Joseph C. Tsai, executive vice chairman, spoke on a conference call to Wall Street analysts Thursday following the company’s report of first-quarter results.
On addressing the trade tensions, Tsai said: “Alibaba’s business is focused on capturing the Chinese domestic consumption opportunity and is less reliant on Chinese exports. We believe that Chinese government policy will continue to support imports into China to satisfy the rising demand of Chinese consumers.”
But that support doesn’t necessarily extend to U.S. goods. According to Tsai, China in November will hold the “world’s largest import exhibition in Shanghai that will showcase products from all over the world. If U.S. goods become too expensive due to tariffs, Chinese consumers can shift to domestic producers or imports from other parts of the world.”
As for the macro environment, the executive vice chairman said: “It is clear that nobody wins a trade war. Over the years, China has become less reliant on exports so that the Chinese economy can withstand the imposition of tariffs on Chinese products. The most important point, however, is that the strength of China domestic demand is critical to the stability of the Chinese economy and market confidence.”
Tsai noted that domestic consumption and investment account for more than 90 percent of GDP growth, and is supported by three important trends. He said those trends are real wage growth with more consumers joining the middle class, healthy household balance sheets due to high savings rates and easier access to consumer credit because of supportive government policy and credit access from companies such as Ant Financial, which is connected to Alibaba.
As for Alibaba, Tsai said the company “gained another 24 million transacting users to a total of 576 million annual active consumers. These consumers have made purchases on our platform. Not just once or twice a year, but on a regular, frequent basis.”
He said the “average annual active consumer places 90 orders across 16 different product categories per year on our China retail marketplace platforms.”
Daniel Zhang, chief executive officer, said the company earlier this month introduced its new 88 VIP tier membership program, which offers a comprehensive set of services from retail discounts to local food delivery, entertainment, online movie ticketing and video- and music-streaming content services.
“We are also seeing keen interest from a large number of brand partners who wish to join this program in order to access the high-value customers across our ecosystem,” the ceo said.
Revenues from the company’s cloud computing business (it grew 93 percent) and entertainment unit (growth was 46 percent year-over-year) boosted the top line. Maggie Wu, chief financial officer, said in a conference call to analysts, “Our strong cash flow continues to allow us the strategic and operational flexibility to invest in technology and acquire the resources to accomplish our strategic objectives.”
Wu also noted that local investments to gain food delivery market share in China and a consolidation of one of its businesses connected to local services following a reorganization may result “in lower overall profit growth near-term.”
Investors weren’t keen on the expected margin pressures going forward, sending shares of Alibaba Group Holding Ltd. down 3.2 percent to close at $172.10 even though adjusted first-quarter results beat Wall Street’s consensus estimate.
For the three months ended June 30, the company said net income was $1.31 billion, or 50 cents a diluted share, representing a 41 percent decrease due to a one-time increase in share-based compensation charges. Excluding the charge, net income would have increased by 33 percent from last year. On an adjusted basis (non-generally accepted accounting principles) net income was $3.04 billion, or $1.22 a diluted share. Revenues rose 61 percent to $12.23 billion from year-ago results.
Wall Street was expecting $1.21 in adjusted diluted earnings per share on revenues of $11.8 billion.
The company said it onboarded international brands such as MCM, Moschino and Giuseppe Zanotti during the quarter.