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Media Losses Narrow as Booming Alibaba Scores $4 Billion Quarterly Profits

Alibaba offices
Courtesy of alibaba group

Losses narrowed at the digital entertainment and media activities of Chinese e-commerce giant Alibaba in the second quarter of its financial year. Results at group level underline how far the China has already recovered since the COVID-19 pandemic and how far the rebound has favored the digital economy.

Alibaba reported a group revenue increase of 30% in the three months to September, with total sales of $22.8 billion (RMB155 billion). Net income was $3.91 billion for the quarter, a drop compared with a period when it took an exceptional profit contribution from financial affiliate Ant Group. But a more consistent picture, cash flow defined as EBITDA, leaped by 44% to $6.94 billion (RMB47 billion).

The group may currently be reeling from the last-minute Chinese government intervention in the IPO of Ant Group, which had been set to raise $36 billion in a dual Shanghai and Hong Kong listing. Many commentators have interpreted the regulatory move as a slap-down from Communist Party bosses for fast-moving and increasingly powerful tech companies. But it remains to be seen how much Alibaba should be worried. The company’s core businesses (home shopping, grocery, and cloud services) are at the heart of country’s V-shaped recovery.

Speaking on a subsequent call with financial analysts, Alibaba CEO Daniel Zhang said: “As Ant Group’s major shareholder Alibaba is actively evaluating the impact on our business in response to the recent proposed change on the fintech regulatory environment, and will take appropriate measures.”

Alibaba’s digital entertainment activities are large and influential businesses, but in the latest quarter they represented just 5% of the group’s revenue, meaning that the group can continue weather their losses.

In the July to September quarter, digital entertainment revenue increased by 8% to $1.19 billion (RMB8.07 billion). Losses narrowed by about two thirds, from RMB2.38 billion to RMB710 million, or $105 million.

In its commentary on the quarter, the company said that streaming service Youku saw a 45% increase in its average daily subscriber base and cut its losses, though it did not disclose the relevant data. Youku subscription increases were driven by original content and a contribution from a VIP membership program, it said.

“Alibaba Pictures invested in and distributed two of the top three grossing films during China’s National Day Golden Week, and participated in the production and distribution of films that collectively accounted for over 50% of China box office sales in the first half of this fiscal year,” according to Alibaba’s own box office tracker, Beacon, Alibaba said.

Revenue increases were also driven by online games, partly offset by the decrease in revenue from customer management. Alibaba said that its self-developed online games business, are no longer classified as innovation initiatives because they have “moved beyond the incubation stage.”

Alibaba had looked to be one of the principal beneficiaries of China’s recovery and its shares recently approached all-time highs. The suspension of the Ant Group IPO put the stock, which is traded in New York and Hong Kong), on a roller coaster ride.

At the end of the Wall Street trading day on Wednesday the ADR shares had notched a 3.6% gain, to finish at US$295.71. On Thursday, prior to the results announcement, the stock rebounded 6.3% to HK$294.6 in Hong Kong trading.