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Media Losses Expand as Alibaba Revenues Leap 60% in First Quarter

Chinese e-commerce giant Alibaba reported revenues of $12.2 billion in the three months to end of June, a year-on-year leap of 61%. Group profits were flat, and losses in the media and entertainment division grew.

The three months, which equate to the first quarter of Alibaba’s financial year, delivered group-wide net profits of $1.16 billion, or $3.04 billion on a non-GAAP basis.

Alibaba’s share price has been battered by fears of the fallout of the U.S.-China trade war. The NYSE-traded ADRs stood at $177.85 at Wednesday’s trading close, a drop of 9.9% over the past 12 months, at a time when the Dow Jones Index has risen by 3.7% and the tech heavy NASDAQ composite index has risen by 6.3%.

Initial reaction to the results announcement lifted the ADR price by 5.4% to $183.12 in pre-market trading. That was despite news that the U.S. will put tariffs on a further $16 billion Chinese goods from midnight.

Alibaba’s digital media and entertainment segment recorded first quarter revenues of $872 million (RMB5.98 billion) and losses of $6326 million (RMB4.29 billion). That compared with revenues of RMB4.08 billion and losses of RMB3.39 billion in the same three months last year.

The group regards media and entertainment as a key growth area serving the aspirations of China’s large and growing middle class. But it is not in a hurry to extract profits from the sector, as it also believes that video enriches its users’ environment and online experience, stimulating purchases through the e-commerce operations. For the full financial year to end of March 2018, EBITDA losses in entertainment grew to $1.32 billion, on revenues of $3.21 billion (RMB19.6 billion).

“We have already gained our consumers..,” said executive vice-chairman Joe Tsai, on a conference call with analysts. “Because of their loyalty we have the confidence to aggressively invest in new products and service offerings.”

Since the end of the financial year in March, Alibaba announced the $2.23 billion purchase of a minority stake in Focus Media, a company which operates video screens in elevators and subways across the country. It also gave a dramatic boost to the visibility of its mainstream streaming video operation Youku, by snaring the online rights to the soccer World Cup.

“We are extremely excited by the flywheel effect of expanding consumer wallet share across our ecosystem. In this quarter we saw share gains in core commerce, video subscription growth driven by FIFA World Cup and the integration of food delivery,” said Tsai.

Alibaba’s movie division is poised to be a key marketing and distribution partner on the Chinese release of “Mission: Impossible — Fallout” on which Alibaba Pictures was also an investor. The film has its China outing on Aug. 31. This week Alibaba Pictures confirmed plans to partner with Entertainment One on a Chinese animated movie based on the “Peppa Pig” character. That will launch in February 2019, at the peak Chinese New Year period.

Tsai was also at pains to suggest that Alibaba’s business, which is largely in China, will suffer little from the ongoing trade war. He said that Alibaba’s Chinese users can substitute Chinese goods for American ones, if imported ones become too expensive. A recent partnership deal with Starbucks in China, he said, showed that Alibaba is working well with American brands.

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