Strong Box Office Helps Alibaba’s Film, Music Units Cut Losses

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Alibaba, China’s e-commerce and entertainment giant, revealed a 9% revenue improvement and a return to profits in the three months to the end of September, the second quarter of its financial year.

The group, which is in the process of breaking itself up into six separate businesses, had revenue of RMB225 billion ($30.8 billion). Net income of RMB26.7 billion ($3.66 billion) compared with a net loss of RMB22.5 billion in the same period last year. But the group explained that this bottom-line swing largely reflected revaluation of its investment assets – down a year ago, and up again in the July-September quarter.

Using Alibaba’s preferred analysis of profitability, non-GAAP net income, the group recorded a 19% improvement in profits. Non-GAAP net income rose from RMB33.8 billion a year ago to RMB40.1 billion ($5.51 billion) this time around. And it is confident enough to announce a maiden 2023 dividend.

Revenue at the digital media and entertainment segment was RMB5.779 billion ($792 million) in the quarter, an increase of 11% compared to RMB5,228 million in the same quarter of 2022. This was primarily driven by the strong revenue growth of offline entertainment businesses of Damai and Alibaba Pictures.

Streaming service Youku enjoyed an increase in Youku’s subscription revenue, but this was partly offset by the decrease in Youku’s advertising revenue. The group does not disclose Youku’s subscription numbers, but analysts consider it to be the third largest of China’s premium video streamers, behind Tencent Video and iQiyi.

The segment saw “adjusted EBITA” losses reduce in the quarter, to RMB201 million ($28 million), compared to a loss of RMB362 million in the same quarter of 2022.

The entertainment segment benefitted from the recovery of offline entertainment market and strong demand in the summer. Ticket sales business Damai improved its profitability year-over-year. In August, Damai and Youku jointly sold tickets for pop group TFBoys’ 10th anniversary concert, for offline performance and online broadcasting, respectively. The online broadcast attracted more than 1.68 million viewers and 100 million interactions.

China’s box office surged during the summer. Alibaba Pictures was involved as co-producer of hit live action films “No More Bets” and “Lost in the Stars.” It was also a co-producer and distributor on the year’s biggest animation film “Chang’an.”

While there was no word on a possible re-organization of the digital entertainment and media group (parts of which lie outside the Hong Kong Stock Exchange-listed Alibaba Pictures), Alibaba said that it had abandoned plans to spin off its cloud intelligence group.

It explained that the new U.S. restrictions on advanced computer chips and semiconductor manufacturing equipment, announced in October, will dent the unit’s ability to fulfil existing cloud computing contracts. Additionally, “these new restrictions may also affect our businesses more generally by limiting our ability to upgrade our technological capabilities,” the group said in a regulatory filing.

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