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Acquisition Binge Pinches Alibaba’s Margins

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In its quest to dominate China’s online retail sector and compete in other industries, Alibaba Group (BABA) may be spending toward lower margins and away from its “asset light” strategy.

Alibaba has been snapping up companies that are generating losses as it tries to maintain a competitive edge against Tencent Holdings (TCEHY), which has been aggressively moving into online retail and payments.

Alibaba’s investments have included areas like cloud computing and expansion oversea as well as brick-and-mortar retailers, logistics companies and microchip firms. Most recently, it said it will invest $2 billion in Lazada Group, a Southeast Asian e-commerce company. (See also: Alibaba To Invest In Ride Hailing Startup Grab.)

Better-Than-Expected Results

“During the past year we also doubled down on technology development, cloud computing, logistics, digital entertainment and local services so that we are in a position to capture consumption growth in China and other emerging markets,” said Alibaba CEO Daniel Zhang in a statement.

The internet giant’s fourth-quarter results showed its operating margin slipped to 15%, down from 25% the same quarter in 2017. (See also: Alibaba Stock May Rebound 14% Over Short Term.)

Alibaba also reported quarterly revenue grew 61% to $9.73 billion, topping Wall Street expectations for a 53% increase. Its core commerce business grew 62% year over year while its cloud computing business grew 103%. But as margins declined, its net income attributable to shareholders dropped 29% year-over-year. Alibaba shares are up 63% the past year and up 9.7% so far this year.

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