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Alibaba is Able to Withstand Mounting Media Losses as Profits hit $12 Billion

Digital entertainment and media losses at Chinese e-commerce giant Alibaba stretched to $2.35 billion in the financial year running from April 2018 to end of March this year. But the group says it will continue to invest in the sector, and that it can afford to do so.

At group level, Alibaba expanded its revenues by 51% to $56.1 billion (RMB377 billion). Net income expanded by 31% to $12.0 billion (RMB80.2 billion).

Entertainment sector earnings before interest taxes and amortization (EBITA) in the fiscal year 2018-19 was a loss of RMB15.8 billion ($2,35 million), compared to a loss of RMB8.31 billion in fiscal year 2018. The steepening losses were “primarily due to continued investments in licensing rights and the production of original content and an increase in impairment charges on licensed copyrights,” the company said.

Alibaba justified the losses as investment in a growth business that attracts and retains customers. “Digital Media and Entertainment is a key piece of our Live@Alibaba vision and an extension of our strategy to capture consumption beyond our core commerce businesses. In fiscal year 2019, we emphasized developing our original content production capabilities in order to attain greater control over content quality, format and scheduling. We will continue to execute this strategy as we believe original content will drive paying subscriber and advertising revenue growth. Youku’s daily average subscriber base continues to grow at a healthy rate, increasing about 88% and 50% year-over-year during fiscal year 2019 and March 2019 quarter, respectively,” the group said in a regulatory filing.

“In March 2019, we increased our shareholding in Alibaba Pictures to 51% and aligned the management of Digital Media and Entertainment and Alibaba Pictures. Alibaba Pictures is principally engaged in the production, promotion and distribution of theatrical entertainment, serving consumers, studios, and cinema operators. Alibaba Pictures was involved in the production, promotion and distribution of highly popular films, including Chinese box-office hit ‘The Wandering Earth,’ which to-date is the second highest grossing (local) film in China, and the Oscar-winning movie ‘Green Book.’ We believe the alignment of management and content strategy between Alibaba Pictures and our Digital Media and Entertainment businesses will support and enhance our original content strategy in the future.”

In early NYSE trading on Wednesday, following the earnings announcement, Alibaba ADR shares were up 2.5% to $179.46. Its market capitalization at that price is $465 billion.

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