Alibaba Group Holding Co. (BABA) posted stronger-than-expected second quarter earnings Friday but the China-based online retailer said 2019 revenues would be weaker than it had originally forecast, citing "fluid macro-economic conditions."
Alibaba said diluted earnings came in at $1.11 per share, just ahead of the $1.07 consensus and up 12% from the same period last year. Group sales, while rising an impressive 54% from the same period last year to $12.4 billion, fell shy of the I/E/B/S Refinitiv forecast of $12.5 billion. Alibaba also it was was adjusting its fiscal 2019 revenue outlook by between 4% and 6% to a range of 375 billion yuan to 385 billion yuan, down from the 400 billion yuan level it suggested after its full year earnings in March.
"The global economy is in a state of uncertainty," said CEO Daniel Zhang on the earnings call with analysts, citing the presence of global trade tensions, consumer trends and stock market volatility.
Notably, Alibaba said that it will hold off on monetizing potential new revenue streams, such as charging merchants for recommendation fees on its redesigned Taobao interface, until economic conditions improve. The company didn't give a time frame for when it might start to monetize these new features, saying it was a function of financial conditions and that it was still refining its offerings.
Alibaba U.S. listed shares, which were as much as 5% higher from their Thursday close in pre-market trading following the sharp overnight rally in Asia, pared gains and fell 0.3% on Friday.
"Alibaba had another strong quarter of rapid growth. In particular, annual active consumers increased by 25 million to reach 601 million in the 12 months ended September 30, 2018," Zhang said in a press release. "We generated synergies across our businesses, demonstrating the power of the Alibaba digital economy, which will be further showcased during our upcoming 11.11 Global Shopping Festival. Under our New Retail strategy, we are realizing our vision to enable renewed growth for traditional retailers through digitizing their store-based operations, powered by Alibaba's technology and consumer insights."
The group also said mobile monthly active users on its retail platform rose by 32 million from the previous quarter to 666 million, while annual active customers rose by 25% to just over 600 million. On its earnings call, Alibaba said that 75% of the increase in its annual active consumer base in the quarter came from less-developed areas of China, as it capitalizes on the growing consumption of China's middle class.
The September quarter earnings are the first since the announced departure of its charismatic co-founder Jack Ma, one of the world's richest men, who said he will step down from his role as chairman next year to concentrate on educational philanthropy.
Ma, who relinquished the CEO role in 2013, has been the face of China's most successful tech giant and one of the most recognizable men in the global industry. The former English language teacher, who had no formal training in technology, helped build a company that is now worth nearly half a trillion, with operations in 200 countries and 66,000 employees, while amassing a personal fortune of around $36 billion, according to Forbes' estimates, making him China's third-richest man.
"I have put a lot of thought and preparation into this succession plan for ten years," Ma said in a letter to shareholders published on the company's website. "I am delighted to announce the plan today thanks to the support of the Alibaba Partnership and our board of directors. I also want to offer special thanks to all Alibaba colleagues and your families, because your trust, support and our joint enterprise over the past 19 years have prepared us for this day with confidence and strength."
"This transition demonstrates that Alibaba has stepped up to the next level of corporate governance from a company that relies on individuals, to one built on systems of organizational excellence and a culture of talent development," Ma said.
Ma, who will remain on the Alibaba board until 2020, will hand the position of executive chairman to current CEO Daniel Zhang, who has largely steered the group's international expansion since taking over as CEO in 2015. Zhang, 46, is relatively unknown to investors, but has led the group's investor conference calls for a number of years and is credited with the creation of the company's 'Single's Day' sales that is now the world's biggest annual online shopping event.
"Under (Zhang's) stewardship, Alibaba has seen consistent and sustainable growth for 13 consecutive quarters," Ma said. "His analytical mind is unparalleled, he holds dear our mission and vision, he embraces responsibility with passion, and he has the guts to innovate and test creative business models."
"Starting the process of passing the Alibaba torch to Daniel and his team is the right decision at the right time, because I know from working with them that they are ready, and I have complete confidence in our next generation of leaders," Ma added.
That generation, however, may face stiffer headwinds in both growth and profits than it predecessors, given President Donald Trump's aim to narrow China's $375 billion trade surplus with the United States and crackdown on the theft of intellectual property, that some have alleged has underpinned the recent growth of China's international tech firms.
Chinese officials, as well, are starting to worry about the strength and influence of the sector, particularly on the nation's youth, and the aggressive overseas expansion of some China-based firms that has driven capital out of the world's second-largest economy. China has issued new limits on the online gaming sector, as is reportedly attempting to reign-in overseas buying by investment firms such as HNA and Ant Financial, which is also controlled by the billionaire Ma.