Alibaba Quarterly Profit Rises Ahead of Potential IPO

Alibaba Group Logo
The Alibaba Group Holding Ltd. logo is reflected in a mirror in an arranged photograph in Hong Kong. Alibaba, formed by Jack Ma and partners in 1999 as a marketplace for Chinese companies, has tapped into the nation’s boom in manufacturing and trade spurred by a wave of economic liberalization. Photographer: Brent Lewin/Bloomberg

Alibaba Group Holding Ltd., China’s online market for products from Louis Vuitton bags to Boston lobsters, posted its fourth straight quarterly profit gain on surging sales ahead of a potential initial public offering.

Net income attributable to ordinary shareholders was $792 million in the three months ended September, a 12 percent increase from the June quarter, according to a presentation from Yahoo! Inc., which owns a 24 percent stake in China’s largest e-commerce company. Revenue rose 51 percent to $1.78 billion.

Alibaba is competing with Tencent Holdings Ltd. and Baidu Inc. for China’s 618 million Internet users by making deals in its home market and the U.S. to extend its e-commerce reach to mobile games and messaging. The Hangzhou, China-based company has been valued at as much as $190 billion as it considers moving toward the biggest IPO since Facebook Inc.

“The growth rates sound like they’re pretty positive for the entire sector, for e-commerce. They have a large base, they have the lion’s share of e-commerce in China,” said Stephen Yang, a Hong Kong-based analyst at Sun Hung Kai Financial Ltd. “For Alibaba itself, how many large cap companies this size are going to get 51 percent growth.”

Alibaba doesn’t sell merchandise itself. Instead, it runs platforms including Taobao Marketplace and that connect retail brands with consumers, a cross between and EBay Inc. It makes most of its sales from commissions and advertising.

Yahoo Results

The company posted 71 percent growth in revenue in the March quarter and 61 percent growth in the three months ended June.

The last quarter of 2013 will include the impact of Nov. 11’s “Singles’ Day” shopping which saw a one-day sales record for Alibaba as revenue on Taobao and Tmall topped 35 billion yuan ($5.8 billion) in the 24-hour period.

“The results are pretty steady but bear no surprises. In terms of growth speed it’s lower than expected,” said Cao Lei, a director at Hangzhou-based China e-Business Research Center. “Fourth quarter earnings should post an uptick as transaction volumes and advertising fees increase during the Nov. 11 sales promotion.”

Yahoo, which reported results for the three months ended December yesterday, announces Alibaba’s earnings with a one-quarter lag. The Sunnyvale, California-based Internet company forecast first-quarter sales that fell short of some analysts’ estimates as Chief Executive Officer Marissa Mayer struggles to turn user growth at the U.S. Web portal into advertising dollars.

Analyst Valuations

Yahoo’s share price doubled last year, an increase mostly attributable to the company’s stake in Alibaba.

Alibaba was valued at $120 billion, according to the average estimate of six analysts compiled in October after the previous earnings statement from Yahoo. Carlos Kirjner at Sanford C. Bernstein & Co. estimates the company is worth $190 billion, which compares to Facebook’s valuation of $104 billion at the time of its 2012 IPO.

Bernstein’s estimate would put Alibaba behind only Google Inc. among the most-valuable Internet companies, eclipsing Inc., Facebook and Tencent.

Since posting a $246 million loss in the three months ended September 2012, Alibaba’s profit more than doubled in the December period from the year earlier, tripled in the March quarter of 2013 and then more than doubled in the three months to June.

Japan’s SoftBank Corp., controlled by billionaire Masayoshi Son, owns about 37 percent of Alibaba, the wireless carrier said in July.

Acquisition Spree

Alibaba’s earnings for the September quarter compare with $422 million for Facebook and were more than double the $297 million posted by Yahoo in the same period.

Alibaba, formed by Jack Ma and partners in 1999 as a marketplace for Chinese companies, has tapped into the nation’s boom in manufacturing and trade spurred by a wave of economic liberalization. The former English teacher owns about 7.4 percent of the company and has an estimated personal net worth of $3.7 billion, according to the Bloomberg Billionaires Index.

The company accounted for 70 percent of package deliveries in China last year, Ma said in a letter published in February 2013 in a newspaper owned by the State Post Bureau.

Alibaba is extending its reach with Web users through acquisitions and new services such as instant messaging, where its Laiwang competes with Tencent’s WeChat. The company this month also said it plans to invest in Citic 21CN Co. to enter the drug data industry.

Partnership Control

Other deals in the past year include a stake in New York-based luxury-sales site Inc.; an investment in U.S. retail website ShopRunner Inc.; and holdings in appliance maker Haier Electronics Group Co. and its logistics business.

In April, Alibaba agreed to buy an 18 percent stake in Sina Corp.’s Weibo, China’s largest Twitter-like service.

Alibaba hasn’t decided when and where to sell shares, the company said in an e-mailed statement on Nov. 20, after Japan’s Nikkei newspaper cited Ma as saying he preferred having an IPO in Hong Kong as early as this year.

Ma and the company’s partners originally wanted to maintain control in a potential Hong Kong listing through a partnership that could nominate a majority of board members. The talks broke down in September, according to people familiar with the matter.

The company had 28 partners as of Sept. 10, Ma said in an e-mail to employees. They include co-founder Joseph Tsai and Chief Executive Officer Jonathan Lu.

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