Alibaba beats forecasts again, takes stake in affiliate Ant

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SHANGHAI (Reuters) – Alibaba Group Holding Ltd (BABA.N), China’s biggest e-commerce company, said on Thursday its third-quarter revenue jumped 56 percent, beating expectations as it shrugged off concerns about a wider market slowdown.

The firm, which also raised its guidance for the year ahead, will take a 33 percent stake in payment affiliate Ant Financial, an important step ahead of an expected initial public offering (IPO) by Ant, valued at $60 billion in 2016.

“This is no secret, everybody knows that Ant Financial will IPO, and (buying the stake) is just something they had to do before that happens,” Beijing-based analyst Li Chengdong said.

The strong growth and the move to bind itself more closely with Ant comes as Alibaba looks to fend off a growing challenge from rivals in its core online retail business that analysts expect will start to put downward pressure on growth.

Alibaba has, however, been defying expectations.

Revenue for the October-December period rose to 83.03 billion yuan ($13.19 billion), up from 53.2 billion yuan a year earlier. That exceeded the 79.8 billion yuan average estimate of 28 analysts polled by Thomson Reuters.

The firm also raised 2018 revenue guidance to growth of 55-56 percent, up from previous guidance of 49-53 percent.

The deal with Ant, which will replace the current system where Alibaba receives 37.5 percent of Ant’s pre-tax profit, will see the firm acquire newly-issued equity in the affiliate in exchange for certain intellectual property rights it owns.

The deal will have no cash impact on Alibaba, it added.

“Importantly, an equity stake in Ant Financial enables Alibaba and our shareholders to participate in the future growth of the financial technology sector,” Alibaba Chief Executive Officer Daniel Zhang said in a statement.

Ant operates hugely popular online payment system Alipay.

CLOUD COMPUTING

Alibaba is looking for new areas such as cloud computing, payments and offline retail to maintain rapid growth rates that helped propel its shares to roughly double in value last year, making it one of the world’s most valuable companies with a market capitalization of $523 billion.

The firm’s third-quarter sales are typically strong because of its Singles’ Day sales event held on Nov. 11, the world’s biggest shopping spree. This year a record $25.4 billion was spent on Alibaba platforms on the day.

Core commerce revenue in the third quarter rose 57 percent to 73.24 billion yuan, up from 46.6 billion yuan a year earlier.

Alibaba, and other tech rivals in China such as Tencent Holdings Ltd (0700.HK) and JD.com Inc (JD.O), have also been investing heavily in brick-and-mortar retailers over the last year to extend their shopper base offline.

Net income attributable to shareholders rose to 24.07 billion yuan, up 35 percent from 17.9 billion yuan in the year-earlier quarter. That compared with the 21.5 billion yuan estimate of analysts surveyed by Thomson Reuters.

Revenue at Alibaba’s nascent, but fast-growing cloud computing unit, climbed 104 percent versus the same quarter last year, slightly faster than the previous period.

Alibaba’s cloud business crossed 1 million customers globally in the quarter ended in September 2017, and has recently opened new data centers in Malaysia and India.

Cloud computing and offline retail make up a comparatively small fraction of the company’s current sales, though Alibaba is betting on these units to become major revenue drivers as the Chinese e-commerce market shows signs of saturation.

($1 = 6.2945 Chinese yuan renminbi)