By Alyssa Abkowitz

BEIJING -- Alibaba Group Holding Ltd. reported strong results in its latest quarter despite uncertainties about China's economy, with users increasing spending and the company showing profit potential in segments beyond e-commerce.

Revenue for the three months ended Sept. 30 exceeded analysts' expectations, rising 55% to $5.14 billion from a year earlier, boosted by strong sales in core commerce, which was up 41%, and triple-digit growth in the company's entertainment and cloud-computing segments.

Executive Vice Chairman Joseph Tsai attributed the growth to a "very healthy China retail marketplace," adding that both cloud computing and digital entertainment are "coming into their own in terms of scale and market position."

Net income, however, fell 66% to $1.14 billion from a year earlier because of a one-time gain last year from a revaluation of its health and pharmacy business. Excluding the gain, Alibaba's net income a year earlier was $640 million.

Alibaba shares rose 1.6% to $102.65 in early-morning trading.

The Chinese internet giant is betting on cloud computing to drive growth. Its cloud-computing arm now has 651,000 paying customers, up from 577,000 during the previous quarter, which contributed to its revenue more than doubling to $224 million. Giving insight into these customers, Chief Financial Officer Maggie Wu said that more than 50% of AliCloud's paying clients are "Chinese unicorn companies," or companies valued at $1 billion or more.

Analysts say Alibaba's cloud-computing products,which compete with Amazon Web Services and Microsoft Azure, could be profitable in the next two years and become a new driver for Alibaba in China's slowing economy. In late October, Alibaba announced it was cutting prices of its cloud-computing products by up to 50%, which analysts say could result in further expansion and revenue for the segment.

Much of the growth of Alibaba's entertainment business, which more than tripled to $541 million, has come since the addition of video service Youku Tudou to the segment last quarter. The high cost of spending on content, though, led to the entertainment division losing $211 million in the latest quarter.

Still, the e-commerce giant faces growing skepticism among some analysts who say the Hangzhou-based firm isn't transparent enough with its financial information. Alibaba disclosed earlier this year that it is under investigation by the U.S. Securities and Exchange Commission. On a conference call following the earnings release, an analyst asked about a report published earlier this week by the New York Post, which said the investigation was getting help from a high-up whistleblower. Shares of Alibaba fell after the report was published.

"We don't think there is any factual basis to the New York Post story, so on that score, when we have real news, we will update everyone," Mr. Tsai responded. He added that Alibaba has been "very transparent" about the investigation.

How Alibaba accounts for its gross merchandise volume on Singles' Day -- China's largest online shopping day -- is part of the SEC probe. Next week, Alibaba will aim to dispel its naysayers with larger sales than last year's $14.3 billion, more than double the combined $5.8 billion brought in by Black Friday and Cyber Monday in the U.S. This year's sales from Singles' Day are expected to reach $18 billion or $19 billion, according to estimates by Citi Research.

Alibaba also faces the hurdles of China's slowing economy and lackluster trading results following the initial public offering of ZTO Express , a Chinese logistics company that counts Alibaba among its biggest customers.

But Alibaba's monetization rate continued to improve, with revenue per annual active buyer reaching $32, up from $30 in the prior quarter, and mobile revenue per mobile active user hitting $23, up from $21.

Mr. Tsai attributed growing mobile revenue -- which accounted for 78% of Alibaba's China commerce retail revenue -- to using big data to personalize customers' interfaces, which increases the ability for Alibaba to generate relevant clicks.

Joshua Jamerson contributed to this article.

Write to Alyssa Abkowitz at alyssa.abkowitz@wsj.com

(END) Dow Jones Newswires

November 02, 2016 11:50 ET (15:50 GMT)

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