Alibaba Group Holding Ltd. revenue missed estimates as the e-commerce giant’s push into mobile curbed its advertising sales growth. The shares fell.
Revenue was 26.2 billion yuan ($4.2 billion) in the third quarter, compared with the 27.6 billion-yuan average of 25 analyst estimates. Ads on mobile phones generate less money than on desktop computers because of smaller screens, and transactions on the Tmall platform grew at a slower pace, the Hangzhou-based company said Thursday.
Billionaire Chairman Jack Ma is investing in shopping apps and promoting Alibaba’s platforms to reach a target of working with more than 10 million small businesses outside China. After September’s IPO and a record 57.1 billion yuan in transactions during a Nov. 11 promotion, Alibaba faces a decelerating Chinese economy and scathing criticism from the government for alleged lax oversight of its websites.
“The revenue increase was much lower than people expected,” said You Na, an analyst at ICBC International Research Ltd. in Hong Kong. “As more merchants start advertising on its mobile apps, revenue growth could slow as ad space and the fees it charges will be lower than what they charge for on desktops.”
Alibaba fell 8.8 percent to $89.81, the most since its September initial public offering, at the close of trading in New York on Thursday. The shares have gained more than 30 percent since the company sold stock at $68 each in the IPO, raising a record $25 billion.
Yahoo shares fell in sympathy with Alibaba’s stock, dropping 5.9 percent in New York, the most since May. Alibaba’s weakness represents a “buying opportunity,” said Ivan Feinseth, chief financial officer at Tigress Financial Partners LLC. “There will be some recovery in the price, so that’ll be good for Yahoo.”
Alibaba’s net income fell 28 percent to 5.98 billion yuan, compared with the 8.8 billion-yuan average of analyst estimates. Ma awarded 4.3 billion yuan, or 16 percent of revenue, in share-based compensation to employees of Alibaba and its payment unit, Zhejiang Ant Small & Micro Financial Services Group Co.
The company’s non-GAAP earnings before interest, taxes, depreciation and amortization gained 34 percent to 15.1 billion yuan, with the non-GAAP Ebitda margin narrowing to 58 percent from 60 percent, according to the company’s Thursday filing.
“Their margins are considerably higher than any comparable company, there are very few companies that are growing this fast and are this profitable,” said Gil Luria, an analyst at Wedbush Securities Inc.
Alibaba earned about 42 cents before interest, taxes, depreciation and amortization on each dollar of sales in the past 12 months. That compares with 28 cents at EBay Inc. and 5.2 cents at Amazon.com Inc., according to data compiled by Bloomberg.
Alibaba, which connects consumers and businesses across its platforms, has a “credibility crisis” fueled by its failure to crack down on shady merchants, counterfeit goods, bribery and misleading promotions, the Chinese government said Wednesday.
The report by the State Administration for Industry & Commerce accused Alibaba of allowing merchants to operate without required business licenses, to run unauthorized stores that co-opt famous brands and sell fake wine and handbags.
“The scale of the revelations could leave Alibaba with substantial reputational damage,” said Cyrus Mewawalla, managing director of London-based CM Research. “We still see several risks in this stock that may in the coming months overshadow the earnings growth.”
Vice Chairman Joseph Tsai criticized the findings during Thursday’s earnings conference call and reaffirmed a commitment to ethical business practices. The company decided to file a complaint against the SAIC official who oversaw a meeting with Alibaba representatives in July to discuss the claims.
“We believe the flawed approach taken in the report, and the tactic of releasing a so-called ‘white paper’ specifically targeting us, was so unfair that we felt compelled to take the extraordinary step of preparing a formal complaint to the SAIC,” Tsai said.
Alibaba said in its IPO prospectus there were allegations in the past, and likely would be in the future, that the company’s platforms were selling goods that were counterfeit or infringed on other copyrights including music.
The company takes a “very draconian” approach to counterfeits, Tsai said in an interview with Bloomberg Television on Thursday. “There’s nothing more important than the trust consumers have in our platform,” he said.
Investors backed Alibaba’s IPO on its ability to expand globally with shopping platforms Taobao, Tmall.com and AliExpress just 15 years after being founded in Ma’s apartment. The company competes with Tencent Holdings Ltd. and Baidu Inc. for the attentions of 527 million Chinese who access the Internet from mobile devices.
Ma said this month in Davos, Switzerland, that he wants Alibaba to serve 2 billion customers globally and 10 million small businesses outside China. AliExpress was founded in April 2010 and already is the top online shopping site in Russia and Brazil, markets where it currently has no employees.
As the company expands its core business of e-commerce, it’s also adding other investments such as finance and entertainment content. The company offers high-definition movies and TV shows through its set-top boxes and has a minority stake in online video site Youku Tudou Inc.
Ma visited Hollywood in October to learn about movie studios as he said China’s film industry needed great cultural products.
Alibaba showed interest in partnering with Sony Corp. on movie franchises including “Ghostbusters” and considered investing in “Pixels,” e-mails revealed by Sony hackers showed.
Ant Financial, the affiliate that includes online payment system Alipay, is expanding in the U.S. and Russia.
Alipay has 17.9 million active users overseas in more than 100 countries and is accepted by 2,000 merchants, Sabrina Peng, vice president for Alibaba’s finance arm’s international business, said in October.
Ma said in October that Alibaba may cooperate with Apple Inc. for mobile payment services.
In September, the finance business won approval to jointly set up a non-state owned bank in China. The bank could start operations as early as May, the official Xinhua News Agency reported, citing Ant Financial Vice President Yu Shengfa.
One of Alibaba’s biggest shareholders, Yahoo! Inc., on Tuesday announced a tax-free spinoff of its $40 billion stake. The deal will put Yahoo’s holding into a newly registered firm called SpinCo, with shares distributed to existing Yahoo shareholders.