Alibaba (BABA -1.32%) has been calling attention to itself with the massive revenue growth it's recorded over the past two years.
This past quarter was no different: The Chinese e-commerce giant reported 62% revenue growth, marking its eighth straight quarter of revenue growth above 50%. The strong sales for the quarter and the year were mainly thanks to its core e-commerce businesses and its cloud computing segment.
However, Alibaba has been doing some heavy investing lately that has affected its operating margins. This year, the company agreed to a 33% stake in Ant Financial, scooped up food delivery company Ele.me, and made an extra $2 billion investment in Southeast Asian e-commerce platform Lazada. Investors will be watching the company closely over the next few quarters to make sure it can maintain a strong balance sheet amid its continued investments.
1. Revenue growth: 58%
Alibaba's annual revenue growth did not disappoint. Revenue increased 58% year-over-year to $40 billion. That's mainly thanks to its core e-commerce businesses, which saw 60% year-over-year growth in revenue to $34 billion. Last May, Alibaba reported that its annual revenue increased 56% year over year to $7.4 billion.
The company's e-commerce businesses are on fire, spurring on this impressive revenue growth. Gross merchandise volume (GMV) hit $768 billion, up 28% year over year, topping the 22% growth rate it had in the prior year. Alibaba attributed the accelerated growth in GMV to the 45% year-over-year growth in the sale of physical goods on Tmall, Alibaba's e-commerce platform. Tmall operates in China and claims 51.3% of all e-commerce sales in the country, according to eMarketer.
2. Cloud revenue growth: 103%
Alibaba's cloud segment was the second-biggest contributor to the company's record-breaking revenue. Cloud computing revenue for Alibaba was up 101% year over year to $2 billion. Alibaba Cloud is the leading provider of infrastructure-as-a-service (IaaS) in China with its 47.6% market share, up from 42.4% in 2016.
Alibaba said it has been growing its base of paying cloud customers, as well as adding higher-value services to increase current customer spending. In just the first three months of 2018, Alibaba Cloud launched 316 new products and features.
3. China retail annual active consumers: 550 million
Alibaba hit another milestone this quarter with its 550 million annual active e-commerce consumers, up from 515 million last quarter. This number is important because it represents 550 million potential customers for Alibaba's other segments, such as its media and entertainment business, or its digital wallet known as AliPay Wallet.
More recently, Alibaba acquired China's biggest food-delivery company, Ele.me, to help it compete in China's $32 billion food-delivery market. It can now get a head start in the space by pushing the service on its 550 million e-commerce customers in the country.
4. An update on the Ant Financial stake and operating margins
In fiscal 2018, Alibaba took a 33% stake in its payment affiliate, Ant Financial, which runs the Alipay mobile payment platform. The equity stake allows Alibaba to expand on its digital payment efforts, which can help Alibaba with its "new retail" projects, its Alipay service, and its international growth.
However, when the stake was announced last quarter, some investors were worried about Ant Financial's drop in profitability. At the time, Alibaba said the decline in profit was due to Ant Financial's "aggressive user growth plan" to stay ahead in China's $15.5 trillion third-party mobile payments market.
These concerns turned out to be justified: Alibaba revealed this quarter that Ant Financial's heavy investing led to it having a net loss for the past quarter. This also seems to be affecting Alibaba, whose own operating margin shrank to 15% this past quarter, down from 25% a year ago. The previous quarter saw operating margin shrink to 31% from 39% in the same period last year.
This seems to indicate that Alibaba's big investments in Ant Financial, Ele.me, Lazada, and new retail are all starting to catch up to it and weigh on its balance sheet. Watch these in the next few quarters, to make sure the company can keep its spending in check relative to its growth.
The Wall Street Journal recently reported that Ant Financial is currently raising funds at a $150 billion valuation, in preparation for its expected 2018 initial public offering.