China's economy has been and continues to grow at an unprecedentedly fast rate, providing fuel for Alibaba Group Holding Ltd.'s (BABA) own rapid growth.
That was the message delivered by the Chinese e-commerce giant's executive vice chairman, Joe Tsai, on the company's earnings call on Thursday, Feb. 1.
Tsai began by noting that the quarter was one of the best in the company's history, with 56% year-over-year revenue growth and an increase to 515 million annual active consumers. However, some of that revenue growth was attributable to non-organic activity such as the inclusion of revenue from Cainiao, its logistics arm, after Alibaba increased its holdings to a majority stake in October.
In its earnings release, Alibaba also increased revenue growth guidance for fiscal 2018, which ends in March, to 55% to 56%, from the top end of the range of 53% that was given last quarter.
Alibaba shares were down as much as 5% following the release of the report as quarterly revenue beat analyst estimates, but non-GAAP earnings per share of $1.63 missed some Wall Street estimates of $1.67. Those figures, however, were impacted by the yuan's rapid rise against the dollar since the end of the quarter.
Share declines were trimmed to about 2.5% by late morning Thursday. The stock finished the session down 5.9%.
Alibaba's shares have risen about 15% this year and have almost doubled over the past 12 months.
On the call, Tsai noted that over the last 18 years per capita income in China has grown at a 14% compound annualized rate, compared to just 3% in the U.S. Despite that rapid growth, per capita income in China is still only one-seventh that in the U.S. That trend, combined with increasing Chinese investments in infrastructure and technology, will "lead to a rising middle class and that bodes well for the future of Alibaba," Tsai said.
Official government data released two weeks ago showed the Chinese economy grew 6.8% in the fourth quarter, beating analyst expectations for 6.7% growth.
Alibaba also announced on Thursday that it had taken a 33% stake in Ant Financial, its financial affiliate that runs the dominant Alipay platform and other financial services. The stake will replace a profit-sharing agreement that entitled Alibaba to a 37.5% share of Ant's pretax profits each quarter. In return for the stake, Ant will receive "certain intellectual property rights owned by Alibaba exclusively related to Ant Financial." The transaction will not have an impact on Alibaba's cash position, according to the company.
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