The Alibaba Group signaled on Thursday that for all the global worries about China’s rising debt and bloated state industries, its economy still enjoys a strong pillar of support: online shoppers.
Alibaba, the Chinese e-commerce giant, said Thursday during an investor conference that it expected revenue for its current fiscal year to grow at a much higher rate than analysts had forecast. It cited expectations for growing sales volumes on its online marketplaces and, even more strongly, surging demand by merchants for its digital ad space.
Alibaba’s shares, which trade in New York, rose 13 percent on Thursday, continuing a run that has taken them to their highest levels since the Chinese company raised $25 billion three years ago in what was then the world’s largest initial public offering.
Alibaba’s forecast illustrates the power of China’s vast and cutting-edge online culture. Though the government strictly controls political content and entertainment, China has evolved into the world’s largest group of internet users who comfortably shop, transfer money, invest and even rent bicycles with the tap of a smartphone. Online shopping has been a bright spot as economists worry about China’s rising corporate debt and overcapacity in its old-line industries like steel and glass.
China’s digital growth will not last forever, though, and even Alibaba’s numbers show that China’s online world cannot counter the laws of diminishing returns. Still, the ranks of China’s online shoppers grew nearly 13 percent last year to a considerable 467 million, according to official statistics, showing the already vast market is still growing.
Alibaba and its largest rival, a Chinese games-and-social-media conglomerate called Tencent Holdings, have seen their shares surge over the past year as they report strong profits that suggest Chinese consumers still have a desire to spend. Their rise mirrors the surge in shares in the biggest technology names in the United States, like Apple, Google and Facebook.
During a speech at the conference, Alibaba’s chief financial officer, Maggie Wu, said that the company expected revenue for the year that will end next March to grow between 45 percent and 49 percent. That is slightly down from the 56 percent growth the company registered in fiscal year 2017, which ended in March. Still, it nonetheless shows the company is expecting to keep growing at a fast pace in the coming year.
Although Alibaba is China’s largest e-commerce company, it does not directly sell the goods on its websites. Instead, it provides marketplaces where anyone from small village dwellers to big global brands can set up online shops and sell to Chinese customers. To reach those customers, Alibaba also offers online advertising space.
That space is looking increasingly valuable.
During her speech, Ms. Wu said the company got about 60 percent of its revenue from its Alimama advertising platform, which works as an auction site on which Alibaba’s many vendors can bid for advertising space on its sites. On that platform the price for ads has been rising as a result of market forces, Ms. Wu said.
At times in the past, Alibaba’s merchants, many of which are small businesses that duke it out with other small sellers on the company’s Taobao marketplace, have complained about increases in what the company would charge for promotions. Such criticism even led to several protests at the company’s offices.
Still, the pricing of online ad space in China has long lagged behind what it can cost in more developed markets in Europe and the United States. Alibaba’s high revenue growth target shows that gap may be starting to close, which is good news for a company that is in essence an advertising company.
“We’re not holding a gun to merchants’ heads to make revenue grow,” Ms. Wu said.
“It’s all determined by merchants,” she said. “They bid for every single click.”
The big revenue growth target is important because investors have been concerned about the slowdown in the total value of the merchandise Alibaba sells on its online platforms. That figure, which Alibaba calls gross merchandise value, grew 22 percent in 2017, a figure smaller than what the company had posted in recent years.