Alibaba Favoring Investment Over Profitability in Media and Entertainment

Chinese e-commerce giant Alibaba made net profits of $2.65 billion in the three months to September, a modest gain of 5%. That compared with a further 54% leap in revenues to $12.4 billion, and the company portrayed the period as an investment phase.

“The growth of our overall profitability this quarter has been tempered by significant investments in local services, logistics, entertainment and international expansion, (but) our core marketplace business continued to show strong profit and cash flow growth, which enables us to re-invest into strategic areas and our technology.”

Alibaba’s digital and media entertainment cluster, which includes the Youku video streaming platform and the Taopiaopiao ticketing business, saw losses increase further to $554 million (RMB3.80 billion) and margins worsen as its revenues reached RMB5.94 billion, up from RMB4.80 billion.

It appears willing to sustain losses in media and entertainment, arguing that it enhances the other businesses, and also that the segment itself is still in a growth phase. “Our strategy is to integrate entertainment into our overall offerings to consumers beyond commerce. The synergy between our commerce and entertainment businesses delivers a superior user experience while increasing customer loyalty and subscription revenue, as well as return on investment for advertisers,” Alibaba said in a regulatory filing.

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