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Quarterly earnings of internet firms surpass market estimates

By He Wei in Shanghai | China Daily | Updated: 2019-05-17 07:54

The exhibition area of Alibaba and Tencent at a software technology expo in Nanjing, Jiangsu province. [Photo by An Xin/For China Daily]

Quarterly earnings of leading Chinese internet companies have surpassed earnings estimates, with new spending power and additional revenue sources expected to lend further support to the economy.

Revenue for Alibaba Group Holding Ltd climbed to 93.5 billion yuan ($13.6 billion) for the three months that ended in March, up 51 percent year-on-year, as adjusted earnings per share of 8.57 yuan topped Wall Street projections of 6.5 yuan, according to Bloomberg estimates.

Core commerce business in China, where shoppers snap up daily necessities and luxury goods on its iconic Tmall and Taobao sites, advanced 54 percent by revenue to 78.9 billion yuan from a year ago. By March, a staggering 721 million monthly active users were using mobile devices for purchases.

Such dynamism has been largely fueled by exponential growth from notably smaller cities and townships, offering promising signs for investors that the nation's consumption potential is yet to be fully unlocked.

"Out of the over 100 million annual active customers that were added by Alibaba in fiscal year 2019, over 70 percent came from lower-tier cities," said Alicia Yap, an analyst at Citigroup Global Markets.

"Once the company has successfully retained new users, together with continued enhancement of technology algorithms, the magnitude of monetizing the recommended feeds in fiscal year 2021 will likely show more effective benefits," she said.

Alibaba's topline growth, which it anticipates to jump 33 percent this year to over 500 billion yuan, signals the health of domestic consumption and suggests synergy effects from its entire ecosystem have played out.

The technology-intensive cloud computing unit, which powers its online-to-offline logistics, smart retail recommendations and multimedia services, saw sales jump 76 percent in the March quarter from the same period a year ago.

At Tencent, China's gaming and social media giant, new income sources led the growth story. Even as gaming weakened, the company pocketed a record profit of 27.2 billion yuan during the first quarter, buoyed largely by financial technology and enterprise-facing services that Tencent has just begun to report as a stand-alone revenue bucket.

The segment is shaping up to be the new revenue driver, registering a 44 percent year-on-year growth to 21.8 billion yuan in the three-month period.

Crossing the 1.1 billion user benchmark, Tencent's WeChat is consolidating its position as a unified entry where Chinese shop, entertain, work and run errands, and such dominance has given rise to emerging revenue strands from payment fees to monetization of its advertising inventory.

"In the longer term, we believe Tencent's pre-emptive steps in growing cloud and industrial internet initiatives will likely capture opportunistic solution-related revenues that transform Tencent to the next level," Yap said.

China's consumer confidence, an indicator of economic booms and busts, bounced back to its record high in the past 12 months as the economy stabilized, according to an index published by global measurement firm Nielsen last week.

To capture market opportunities, it's now time to "double down on China" as foreign brands need to change their playbook to succeed, said Bruno Lannes, a partner at global consultancy Bain and Company.

"China is home to unmanned shelves with customized stock keeping units based on profiling of frequent customers-and facial recognition payment," said Lannes. "It is a market that has leapt beyond the integration of online and offline retail to introduce ubiquitous shopping across a range of consumer touch-points."

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