Alibaba, the Chinese e-commerce and entertainment giant, has announced a massive $1.2 billion goodwill impairment charge against its video-streaming platform, Youku. This revelation was made as Alibaba released its financial results for the third quarter of its current fiscal year. While group revenues increased by 5% to RMB260 billion ($36.7 billion), net profits and earnings per share experienced a significant decline. Net income to ordinary shareholders fell by 69% year on year, dropping from RMB46.8 billion to RMB14.4 billion ($1.51 billion), and per share earnings were down by 68%.
The Focus on Core Businesses
Alibaba’s new CEO, Eddie Wu, acknowledged the performance as a solid quarter and outlined the company’s priorities moving forward. Wu emphasized the importance of reigniting growth in its core businesses, e-commerce, and cloud computing. The company plans to increase investment to enhance users’ core experiences, driving growth in Taobao and Tmall Group. Additionally, Alibaba will focus on developing public cloud products and sustaining strong growth momentum in international commerce.
Digital Media and Entertainment Revenue
Alibaba’s “digital media and entertainment” cluster saw an 18% increase in revenue, reaching RMB5.04 billion ($710 million). This growth was primarily driven by the strong performance of Alibaba Pictures’ offline entertainment businesses. The company’s subsidiary, Damai, played a significant role in selling tickets for major music concerts in China. Moreover, Alibaba Pictures’ movie segment accounted for over half of China’s total box office during the quarter.
Youku’s Struggles
Despite revenue growth in the digital media and entertainment sector, Alibaba faced increasing losses in this division. Quarterly losses for digital media and entertainment rose from RMB391 million to RMB517 million ($73 million), mainly due to the mounting losses of Youku. While Youku ranks third among China’s mainstream video streamers, behind Tencent Video and iQiyi, Alibaba has not disclosed Youku’s subscriber, monthly active user, or advertising numbers. The company seems unoptimistic about near-term profitability compared to its rivals.
Impairment Charge to Youku’s Goodwill
Alibaba noted in its profit statement that it took a RMB8.49 billion ($1.196 billion) impairment charge to Youku’s goodwill. The company acquired Youku Tudou (formed from the merger of two smaller streamers) in 2015 for $5.50 billion. In 2014 and 2015, Youku reported losses of RMB600 million and RMB837 million, respectively.
Despite this setback, Alibaba remains committed to strengthening its core businesses and driving growth in the coming year. With strategic investments and a focus on user experience, the company aims to reclaim its market leadership. To learn more about Alibaba’s financial results and its challenges with Youku, visit F5mag.com.