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Alibaba Profits Hit $10 Billion as Entertainment Losses Top $1.3 Billion

Chinese e-commerce giant Alibaba unveiled profits of $10.2 billion for its financial year to the end of March, achieved on revenues of $39.9 billion. But the group’s array of media businesses weighed heavily on the results, with losses increasing to $1.32 billion.

Group revenues were up by 58% compared with the 2016-17 financial year. Net profits rose by 44%, pointing to shrinking margins. Using the Non-GAAP reporting method that Alibaba prefers, earnings were also reported as $13.3 billion. Alibaba’s shares, traded in ADS form on the New York Stock Exchange, were little changed in early trading on Friday, at $183.87.

“During the past year, we doubled down on technology development, cloud computing, logistics, digital entertainment, and local services so that we are in a position to capture consumption growth in China and other emerging markets,” CEO Daniel Zhang said in a statement that accompanied the financial data.

“We are well-positioned to execute our strategy to grow the digital media and entertainment business as we leverage our customer base of 552 million annual active consumers and insights about their interests and preferences. The synergy between our commerce business and entertainment can deliver a superior user experience while increasing customer loyalty and subscription revenue, as well as return on investment for advertisers,” the company said.

Its video streaming unit Youku “demonstrated the powerful effects of original content development, as our proprietary reality shows and exclusive drama series drove the growth of daily average subscribers by over 160% year-over-year.”

Full year 2017-18 revenue for the digital media and entertainment business was $3.12 billion (RMB19.6 billion), an increase of 33% compared to fiscal year 2016-17. EBITDA losses expanded from RMB6.54 billion (reported as $951 million) last year, to $1.32 billion on revenue of $3.21 billion (RMB19.6 billion). Alibaba also booked a previously reported impairment loss of $2.28 billion (RMB18.1) reflecting the diminished value of its majority stake in separately listed Alibaba Pictures Group.

“Adjusted EBITA margin (in digital entertainment and media) improved to negative 42% in fiscal year 2018, from negative 44% in fiscal year 2017, primarily due to improved results from UCWeb and other media and entertainment businesses, partially offset by an increase in investment in content costs of Youku Tudou,” the group said.

“We don’t view [digital media and entertainment] as a separate new business. We view this as a category expansion for our existing and the newly acquired customers. So this is an integral part of our ecosystem,” Zhang told financial analysts on a subsequent conference call. “And as we always said, for Chinese people and when their lifestyle changing and their life quality changing and upgraded, they not only need more physical products, local services, but also they need more digital contents.”

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