Aug 14, 2015

Reality Hits Alibaba’s Results

Reality Hits Alibaba’s Results

Months after monster U.S. IPO, e-commerce company faces expensive effort to court mobile phone users, challenges in managing expansive business

Alibaba’s weakening grip on China’s e-commerce market is alarming investors spooked by the company’s slowing revenue growth, a costly battle with rivals to capture more mobile users, and China’s swooning currency.

On Wednesday, Alibaba Group Holding Ltd. reported its slowest quarterly revenue growth in more than three years, while its transactions with Chinese consumers also disappointed investors. Its shares were off 5.1% at $73.40 in late afternoon Wednesday trading in New York. The stock, which climbed as high as $120 in November, is now just 7.9% above its initial public offering of $68.

Alibaba, which runs China’s biggest online commerce company, has registered some successes. On Wednesday, it said it was doing more business with consumers on their mobile gadgets and reaping more revenue from each of those transactions. Both have been key challenges as Alibaba and its rivals chase Chinese consumers as they shift to using smartphones.

The company has moved to shore up its presence in areas where it lags behind some rivals, such as This week, Alibaba unveiled a $4.5 billion tie-up with Chinese bricks-and-mortar electronics retailer Suning Commerce Group Co., a move meant to broaden its gadget offerings, add to its logistics and provide in-person services to consumers.

Alibaba also faces concerns over how slowing economic conditions and China’s stock-market correction will affect retail spending. Alibaba Chief Executive Daniel Zhang said Wednesday the company is keeping an eye on consumer trends but felt optimistic because its most active buyers make frequent purchases throughout the year, including of daily-use products.

Mobile transactions continued to grow. They accounted for 55% of Alibaba’s overall transactions in the quarter, up from 51% in the March quarter and 33% in the prior-year period. The number of active users on Alibaba’s mobile platforms increased to 307 million at the end of the quarter from 289 million in March and from 188 million a year ago.

For the quarter ended June 30, net profit more than doubled to $4.97 billion, or $1.92 a share, mainly because of a gain from the deconsolidation of Alibaba Pictures. Excluding that and other special items, per-share earnings rose 21% to 59 cents, edging above analysts’ estimates for 58 cents a share, according to Thomson Reuters.

Revenue rose 28% to $3.26 billion, missing analysts’ estimates for $3.39 billion.

The company attributed the slower revenue growth to the suspension of online lottery ticket sales, lower fees from Alibaba’s group-buying and flash sales site, and the transfer of its small-loans business to its financial affiliate.

What is Alibaba?

Alibaba is China’s largest e-commerce company but it does a lot more than just sell toys and clothes. The WSJ’s Ken Brown explains how Alibaba’s network of interconnected products and services have led them to become the biggest e-commerce company in China. (May 4, 2014)

Barron's technology writer Tiernan Ray shares his insights on Alibaba's earnings report and why the market is punishing the stock.

Chinese e-commerce retailer Alibaba will report first quarter earnings results for 2016 on Wednesday. WSJ’s Geoff Rogow discusses what investors should be on the lookout for. Photo: AP.

But an analyst said the slower growth could have been the result of management changes that began with the shuffling of top ranks at Alibaba’s shopping platforms in March. The move saw three major business units—the Chinese retail platforms Taobao, Tmall and group-buying site Juhuasuan—folded into one.

“The impact is that for a short period there’s a business suspension and then a change of direction,” said Tian X. Hou, founder of research firm T.H. Capital LLC. “New management will have a new policy, and basically you slow down.”

Despite the disappointing revenue, Alibaba’s financials still looked strong in absolute terms, said Sean Zhang, an analyst with 86Research Ltd. in Shanghai.

“Alibaba remains the proxy of China’s e-commerce sector,” Mr. Zhang said. “Even within five years, Alibaba will remain the dominant player.”




T.H. Capital is an independent research and investment advisory firm specializing in China. We offer real-time, on-the-ground, bottom-up research across a wide spectrum from macro and industry analysis to company specific projects, from China ADRs to international names that have meaningful exposure to the China market. We deliver relevant, comprehensive and data driven research adding immense value to clients.

5E, Tower D, Central International Trade Center, 6 Jianguomenwai Avenue, Beijing 100022, China


Do you enjoy pursuing original research in any aspect of the financial markets and have the ability to present research in a refreshing and captivating manner?