Alibaba Misses Earnings Estimates on Higher Tax Bill and Spending

Alibaba’s earnings lagged estimates after it swallowed a higher tax bill and splurged on the entertainment and cloud computing businesses that’re fueling revenue growth, according to Bloomberg.

China’s biggest e-commerce company posted adjusted earnings-per-share of 4.35 yuan, missing the 4.51 yuan average of estimates compiled by Bloomberg. That came even as revenue rose at a faster-than-expected 60 percent to 38.6 billion yuan ($5.6 billion). Shares of Alibaba fell in pre-market trade before recovering.

While Chinese consumption remains strong, the world’s second largest economy showed signs of cooling as retail sales and industrial output growth sputtered in April with regulators cracking down on swelling financial leverage. Alibaba has expanded into new areas in response to the deceleration, buying control of Lazada to gain a Southeast Asian foothold and waging a price-based war with Tencent in cloud computing services.

Income tax expenses soared 149 percent to 4.6 billion yuan in the March quarter. Its effective tax rate climbed to 29 percent from 23 percent a year earlier, when the company set aside a portion of its earnings as non-taxable reinvestment capital. Alibaba said it also incurred additional taxes from the sale of certain unspecified investments. The company green-lit a $6 billion share buyback program over two years.

While cloud unit revenue doubled in the March quarter to 2.2 billion yuan, the business had an operating loss of 505 million yuan as it slashes prices to snatch market share from Amazon and Tencent. It’s ratcheting up the division to support billions of dollars in daily transactions, help merchants target shoppers, and anchor fast-growing video streaming. Revenue from digital entertainment more than tripled to 3.9 billion yuan with an operating loss of 2.6 billion yuan as it spends on content for video site Youku Tudou and other platforms. Losses in digital entertainment should narrow this year, CFO Maggie Wu said.