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11/02/2024 03:29:40 pm

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Alibaba Q2 Revenue Surges, But Faces Profit Margin Pressure

Alibaba

(Photo : Reuters) In its first quarterly earnings report since its IPO, Alibaba reported a 54% surge in revenue to $2.74 billion. However, its profit margins narrowed during the quarter, a trend that could continue, experts warn, if the company focuses too much on growth.

In its first quarterly earnings report since its IPO, Alibaba Group, Inc. (BABA) today reported a 54% surge in revenue to $2.74 billion. However, its profit margins narrowed during the quarter, a trend that could continue, experts warn, if the company focuses too much on growth.

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"They have to play this game carefully," Mohanbir Sawhney, director of the Center for Research in Technology and Innovation at Northwestern University's Kellogg School of Management, told CNBC. "They really have to think about balancing their profits and their margins with the growth and the customer experience. Growth is very seductive because there are so many opportunities before Alibaba."

Non-GAAP EBITDA (earnings before tax, depreciation and amortization) margin for the seond quarter was 50.5% for the quarter, down from 59.4% during the same period the previous year.

Sawhney said Alibaba's best move would be to concentrate on its home market before setting out to conquer the world.

"If I were Alibaba I would be focused like a laser beam on the core Chinese market, which really has a lot of headroom to grow," Sawhney said. "If they take their eye off that ball, there are competitors like JD.com backed by Tencent that may take away from market share."

Growth is certainly not a problem for Alibaba, as its 54% increase far outpaced that of Amazon.com's (AMZN) revenue growth of 20% during the same quarter.

"We delivered a strong quarter with significant growth across our key operating metrics," said Jonathan Lu, CEO of Alibaba Group. "Our business continues to perform well, and our results reflect both the strength of our ecosystem and the strong foundation we have for sustainable growth."

Lu said Alibaba had increased its monthly active users on its mobile commerce apps in September to 217 million, and $95 billion in mobile GMV for the 12 months ended September 2014. "We are also encouraged by continued improvement of mobile monetization  which demonstrates the strong commercial intent of our users," Lu said.

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