a company that is growing sales at more than 50 per cent a year deserves freedom to operate as it chooses. It is doing something right. In its most recent quarter, reported Tuesday, Alibaba did that. (Not on a small base, either: in the same quarter last year it already had $1.8bn in sales).
Some leeway is needed. Alibaba’s profit margin (before interest, tax, depreciation, amortisation and stock compensation) fell nine percentage points over the period. It is still an impressive 50 per cent. The size of the decline makes it hard to wave away, though. Costs rose relative to revenue across the company: payroll, advertising and promotions, the cloud computing business. And capital spending tripled.
So how much leeway does the growth buy? “We do not manage to a margin target”, Alibaba declares. Quite so: money is counted in currencies, not percentages. Further, Alibaba’s returns have been prodigious so far. Sinking more cash into the business looks better than the alternatives.