Alibaba's revenue jumps but investments to prolong margin squeeze

BEIJING -- Alibaba Group Holding Ltd, China's biggest e-commerce firm, warned on Thursday investments in its delivery business would keep pressuring profits even as it reported its strongest-ever quarterly revenue growth, largely in line with estimates.

US-listed shares of Asia's most valuable public company rose early on Thursday but then erased gains to end the day down 3 percent.

While Alibaba makes money from its core businesses, including online marketplaces Tmall and Taobao and payment platform Alipay, it also has far flung investments in sports content, microchips and facial recognition technology.

"As Alibaba continues to invest in New Retail initiatives, the consolidation of lower margin businesses such as Cainiao, Ele.me, and Lazada is shifting the long term margin profile of the core business," Baird analyst Colin Sebastian said in a note.

"We expect management's ongoing focus on New Retail market share will continue to be a profitability headwind for the foreseeable future," said Sebastian, cutting his price target on the stock by $5 to $215.

In April-June, Alibaba's gross margin was 11 percent versus 29.2 percent a year earlier, the lowest since the company's 2014 stock exchange listing. Profit margins at Alibaba are typically well above 20 percent.

On Thursday, the company said it had formed a holding company for its food delivery platform Ele.me and food and lifestyle services firm Koubei, for which it had received over $3 billion in new investment commitments, including from SoftBank Group Corp and Alibaba itself.

Quarterly net profit at Alibaba, led by China's second-richest man Jack Ma, plunged 41 percent, hurt by a one-time charge for stock-based compensation paid to employees to account for a jump in valuation of its affiliate Ant Financial.

Without the charge, Alibaba said its net income would have risen by 33 percent from the year-ago period. Excluding one-off items, the company earned 8.04 yuan per share, or $1.22 per share, missing the average estimate of 8.15 yuan per share.

Ant Financial, China's largest financial technology company, is controlled by Ma and has a profit sharing agreement with Alibaba. It announced a $14 billion fundraising in June, which valued it at around $150 billion.

Ant Financial, which is expanding rapidly into foreign markets, is locked in a costly battle for market share at home with WeChat Pay, owned by Alibaba's arch rival Tencent Holdings Ltd.

ACCELERATING REVENUE GROWTH

Shares of Alibaba, which has a market value of about $446 billion, are nearly flat so far this year, including Thursday's losses, compared with a 14 percent rise in the tech-heavy Nasdaq Composite Index.

But Alibaba's core e-commerce business is still growing strongly at a time when the broader Chinese economy is slowing amid a trade tariff war with the United States.

It has been pushing into brick-and-mortar to complement its massive online business and stay ahead of JD.com Inc, backed by Tencent.

Both JD.com and Tencent reported slower revenue growth in the latest quarter. Tencent was hurt by weak gaming revenue, while JD.com said that a slump in summer sales hurt profit.

Sales at Alibaba's core e-commerce business swelled 61 percent to 69.2 billion yuan. Total June quarter sales jumped 61 percent as well to 80.9 billion yuan ($11.77 billion). Analysts expected 80.7 billion yuan, according to Thomson Reuters I/B/E/S.

Revenue in Alibaba's cloud computing business nearly doubled to 4.7 billion yuan, while entertainment unit revenue rose 46.4 percent to 6 billion yuan.

source: news.abs-cbn.com

Why Japanese rice is the new safe luxury food in China

SHANGHAI/TOKYO - First it was European infant formula, then New Zealand milk. Now Chinese consumers are adding Japanese rice to the list of everyday foods they will bring in from abroad at luxury-good prices because they fear the local alternatives aren't safe.

The volume of rice imported from China remains small - 160 tonnes last year, according to Japan's National Federation of Agricultural Cooperative Associations.

But that is more than triple the total in 2013, a trend that illustrates Chinese consumers' dwindling confidence in the safety of the country's own agricultural produce.

"Chinese rice farmers use pesticides," said a seller identified as Ying Ying, who started offering Japanese rice on the Taobao online marketplace last August. "Japanese rice isn't polluted by heavy metals."

Pollution from industrialization has exacted a heavy toll on China's soil and water. In May 2013, officials in Guangdong province in southern China said 44 percent of rice samples contained excessive levels of the metal cadmium.

A study by the Ministry of Environmental Protection last April estimated that 16.1 percent of China's soil was contaminated. In parts of the country, soil pollution is so bad that some rice farmers refuse to eat what they grow.

After the cadmium revelations, some Chinese consumers began to see rice from Thailand as an affordable and safe substitute.

In contrast, Japanese rice is neither cheap nor easy to find in China. Japanese rice imported by Chinese grain trader COFCO sells for 74 Chinese yuan ($12) a kg on PinStore, an online supermarket run by Japanese trading house Sumitomo Corp . Domestic rice sells there for as little as 7.5 yuan per kg.

As demand grows, Chinese consumers are increasingly turning to online platforms such as Taobao, run by Alibaba, to buy rice directly from individuals in Japan.

One person seems to have paid as much as 1,499 yuan ($241) for five kg, according to Taobao.

Steep prices, though, are no deterrent for some.

"Much tastier than Chinese rice. Worth every cent - great texture and taste," one delighted buyer wrote on Taobao.

To meet demand, some Chinese producers now say they use Japanese seeds and promote their rice as a safer alternative to purely domestic strains.

Zhejiang Xinxie Yueguang Agricultural Science and Technology says its Echizen brand rice is safe and grown with "water from pure sources and strict quality control". The packaging says the rice is a Japanese variety.

But Echizen rice is grown in Changxing county, a hub of lead-acid battery production in eastern Zhejiang province. Battery production can be highly polluting.

Li Jun, general manager at Zhejiang Xinxie Yueguang, insisted the company's rice had passed tests for lead, cadmium, mercury, pesticides and other chemicals by state inspectors.

The company had also found other areas to grow rice where there was less concern about pollution, Li said.

The Chinese eat around 120 million tonnes of rice a year and the country imported more than 2.2 million in the first 11 months of 2014, including 1.2 million tonnes from Vietnam and 626,000 tonnes from Thailand, customs data shows.

Japan is a small rice exporter - just 3,777 tonnes in January to November 2014, according to agriculture ministry data - but it is looking to boost shipments to Asian countries as part of a wider push to export more agricultural products.

However, if the trend to China looks encouraging, any further increase through normal export channels may be slow: the Chinese authorities have given just one Japanese rice mill clearance to send polished rice.

Others have begun an application process but that has stalled. Some would-be suppliers have been waiting for three years, a Japanese government official said.

source: www.abs-cbnnews.com