Alibaba Earnings Beat Top Estimates As Sales Defy Slowdown

Alibaba Group Holding Ltd.’s quarterly revenue beat the highest analyst estimate after personalized shopping recommendations and a June sales bonanza drove China’s leading online retail business.

The company’s U.S. shares climbed 3.3% to $167.43 at 11 a.m. in New York trading. Revenue at Asia’s biggest company rose 42% to 114.9 billion yuan ($16.3 billion) in the three months ended June, surpassing the 111.6 billion yuan average estimate. Net income also came in ahead of expectations, helped by more than $600 million of pre-tax profit from Ant Financial, the payments-to-lending affiliate controlled by billionaire Jack Ma in which Alibaba has agreed to take a one-third stake.

Alibaba, whose business is predominantly domestic, is riding a surge in internet shopping in defiance of a slowing home economy. Chinese online sales accelerated in the June quarter from the previous three months, helped by sales promotions that unfolded across the country’s largest e-commerce platforms. Alibaba is also fine-tuning services that target buyers based on personal preferences, introducing tweaks to product feeds for instance to boost ad revenue and buying.

Given the uncertain macroeconomic environment, however, the company is in no hurry to sell ads on its new recommendation feeds, Chief Financial Officer Maggie Wu told analysts on a conference call.

“Despite the macro environment not being as good as last year, Alibaba has launched a lot of new initiatives and the personalized product feed is helping maintain its growth rate,” said Steven Zhu, an analyst with Pacific Epoch. “Its live-streaming services and collaboration with international brands are helping.”

Alibaba is approaching a critical juncture just as Chief Executive Officer Daniel Zhang prepares to replace billionaire founder Jack Ma as chairman in September. A U.S. campaign of tariffs and other curbs is heightening uncertainty around the world’s second-largest economy, while the emergence of rivals at home such as Pinduoduo Inc. tests its longstanding dominance of Chinese online retail.

The e-commerce titan may be on the look-out for assets to bolster its lead. Alibaba is in talks to pay $2 billion for NetEase Inc.’s Kaola, which specializes in selling foreign goods to Chinese consumers, local media outlet Caixin reported.

The company is also hatching plans to raise more capital. Alibaba’s quarterly performance bolsters its ambition of pulling off what could be Hong Kong’s biggest share sale since 2010. The company is said to have already filed confidentially for a stock listing, but it’s unclear when it might go ahead with the float given the widespread protests that have gripped Hong Kong over the past 11 weeks.

Alibaba’s cloud business, long one of its fastest-growing divisions, decelerated a tad. Revenue climbed 66% to 7.8 billion yuan in the quarter. Overall, adjusted earnings per share came to 12.55 yuan versus the 10.3 yuan projected. Net cash slipped 4% in the quarter, depressed by a $250 million cash settlement reached last quarter on a U.S. federal class action lawsuit.

The “key standout for us is that Alibaba’s China commerce business grew 40%, close to twice the rate of the China online retail industry,” said Neil Campling at Mirabaud Securities. “The scale benefits are paying off and Alibaba is enjoying both active consumer growth momentum and higher average spend.”

Bloomberg