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Alibaba beats estimates as recommendations boost sales

Alibaba’s recommendations feature to users is driving more sales than traditional search function.
Alibaba’s full-year revenue rose 51% to 376.8bnn yuan, toward the bottom of its forecast range of 375-383bn yuan. Picture: Michael Nagle, Bloomberg

Alibaba’s posted quarterly revenue and earnings that topped analyst estimates as personalised recommendations drive consumer spending across its shopping sites.

Revenue at China’s biggest e-commerce company rose 51% to 93.5 billion yuan ($13.6 billion) in the three months ended in March, above the 91.7 billion-yuan average of analysts’ estimates compiled by Bloomberg. Adjusted earnings-per-share was 8.57 yuan, topping projections for 6.5 yuan. The Hangzhou-based company predicted revenue in the current financial year of more than 500 billion yuan, short of projections for 509 billion yuan.

Recommendations to users based on their preferences are now driving more sales than traditional search, boosting Alibaba’s ability to provide targeted advertising for merchants on its main Taobao platform. That’s helping the e-commerce operator generate more revenue at a time escalating US-Chinese tensions threaten to dampen the world’s No. 2 economy.

The “testing of new recommendation-based advertising indicates monetisation will kick in soon, supporting faster earnings recovery,” Binnie Wong, a Hong Kong-based analyst with HSBC, said in a report ahead of the results. The new features could help improve the conversion rate for merchants, Wong wrote.

Shares of Alibaba rose as much as 4% in pre-market trading in New York. The stock had gained 28% this year through Tuesday’s close compared with an 13% gain for the S&P 500 Index.

Earlier on Wednesday, rival Tencent posted earnings that topped estimates even as revenue growth slowed to the lowest since its 2004 initial public offering.

Read: Tencent profit tops estimates, reassuring skittish investors

Alibaba’s full-year revenue rose 51% to 376.8 billion yuan, toward the bottom of its forecast range of 375-383 billion yuan.

The core commerce business posted revenue of 78.9 billion yuan, a jump of 54%.

Alibaba’s main shopping app Taobao started testing an ad product known as “super recommendations” in April, according to an April 18 HSBC report. The feature allows merchants to use text, graphics and short videos to market their wares on a number of new personalised recommendation feeds including “guess you like it,” a product display based on users’ browsing and purchase history; “good stuff here,” a shopping guide; and live-streaming showrooms.

All of the ad space from these feeds will be integrated to a single back-end system so that merchants can manage their marketing strategy and review performance, HSBC said.

Revenue from Alibaba’s cloud unit surged 76% to 7.7 billion yuan, the company said. The business is becoming a key pillar of growth, with more than half the market in China.

The cloud business could post growth of 46% per year through 2022, according to Bernstein estimates. In Asia, Gartner forecast that Alibaba last year accounted for 19.6% of the Asian market for infrastructure as a service and infrastructure utility services, two of the most popular forms of cloud business. That means its regional market share rose by nearly a third from 2017, while Amazon’s fell slightly to 11%.

“Our cloud and data technology and tremendous traction in New Retail have enabled us to continuously transform the way businesses operate in China and other emerging markets, which will contribute to our long-term growth,” Chief Executive Officer Daniel Zhang said in the statement.

Sales from the digital media entertainment unit rose 8% to 5.7 billion yuan.

© 2019 Bloomberg L.P
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