Alibaba surpassed first quarter revenue estimates this week but warned investments into its food delivery business will weigh heavy on profits.
The world’s largest retailer said revenue rose 61 per cent to CNY 80.9 billion (£9.16 billion) in the 12 weeks from April to June, compared with analysts’ average estimate of CNY 80.7 billion (£9.14 billion).
However net income attributable to shareholders fell 41 per cent to CNY 8.7 billion (£0.99 billion), or CNY 3.3 (£0.37) a share.
These were partially due to one-off costs relating to a share-based compensation following a fundraising round by Alibaba’s payment affiliate Ant Financial.
The New York-listed e-commerce giant is considered to be China’s equivalent to Amazon.
Founded in 1999, Alibaba is now challenging its key global competitors to be the world’s most valuable brand and to beat Google and Apple in the race to reach £1 trillion in valuation.
The company reported its fastest pace of growth in more than four years during the quarter as it continued to invest in areas outside of retail.
While revenue is still booming at Alibaba, its costly investment in offline retail, logistics and cloud computing has squeezed profit margins, which are typically well above 20 per cent at the company.
From April to June, Alibaba’s gross margin was 11 per cent, compared with 29.2 per cent in the previous year.
“This investment into the local services area… will result in slower overall gross profit in near term,” said Alibaba chief financial officer Maggie Wu.
Sales at Alibaba’s core e-commerce business rose 61 per cent to CNY 69.2 billion (£7.84 billion), compared with a 58 per cent rise in the same quarter a year earlier.
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