Alibaba First-Quarter Profit Triples Ahead of IPO

Alibaba Group Holding Ltd., the Chinese e-commerce giant planning to go public in the U.S., said first-quarter profit surged as advertisers boosted spending on the Tmall and Taobao platforms.

Net income almost tripled to $1.99 billion, or 84 cents a share, in the three months ended June, according to a filing yesterday with the U.S. Securities and Exchange Commission. Revenue rose 46 percent in local currency to the equivalent of $2.54 billion.

The figures are likely the last numbers investors will see before deciding whether or not to buy shares in what could be the largest IPO ever in the U.S. Alibaba, China’s biggest e-commerce operator, may kick off its roadshow meetings to market the IPO after Sept. 2, though the timeline hasn’t been finalized, people with knowledge of the matter have said.

“This was a pretty good quarter that should help sentiment around the valuation of the deal,” said Jeff Papp, an analyst at Oberweis Asset Management Inc., which oversees more than $1.5 billion in Lisle, Illinois. “We think it’s important because the last quarterly numbers that they put out were seasonably weak.”

Alibaba issued stock-based compensation worth $59 a share, which indicates a market value of $138 billion, based on 2.34 billion shares outstanding as of June 30, according to the filing. The company may be worth $187 billion after the IPO, according to the average estimate of 11 analysts surveyed by Bloomberg last month. The share count includes preferred and unvested restricted shares.

Mobile Users

Shares of Yahoo! Inc., which owns a 23 percent stake in Alibaba, rose 1 percent to $38.18 in New York yesterday. The Sunnyvale, California-based company will be selling the largest chunk of shares in the IPO. SoftBank Corp., which owns more than 30 percent of Alibaba, fell 0.1 percent to 7,312 yen as of 10:10 a.m. in Tokyo.

Alibaba said the number of users who access its sites through smartphones, a key plank of its growth strategy, increased sharply. The company had 188 million mobile monthly active users in June, up from 163 million in March, according to its filing. The company agreed in June to acquire the rest of UCWeb Inc. to add Internet browsers and an application store to its services for mobile devices.

Mobile transactions accounted for 32.8 percent of Alibaba’s total in the June quarter, up from 27.4 percent in the previous quarter and just 12 percent a year earlier.

Alibaba’s retail platforms helped generate 6.1 billion packages in the twelve months ended June, accounting for 54 percent of the nation’s total, the company said.

Narrower Margins

Still, the company’s profit margins narrowed during the quarter in part because of rising marketing expenses. Alibaba’s margin on adjusted earnings before interest, taxes, depreciation and amortization, declined during the quarter, to 54 percent from more than 56 percent a year earlier.

“Margins had been coming down a bit and that continued,” Papp said. “That’s continued to be a negative, with the one exception that they already still have extremely high margins to begin with.”

Alibaba’s investor meetings for the IPO -- called a roadshow -- will give the company the opportunity to answer questions from the world’s biggest fund managers and build demand for its shares.

Investor Meetings

The schedule, put forth by banks managing the offering, would have meetings begin in Hong Kong and Singapore before executives travel to London and eventually host their first U.S. event in New York on Sept. 8, people with knowledge of the matter have said. The timeline has Alibaba targeting a Sept. 16 trading debut, the people said.

Chinese Internet users have grown to 632 million, greater than the population of any other country except India, and could exceed 850 million by 2015, according to government data. McKinsey & Co. predicts online retailing in the world’s second-largest economy will reach $395 billion next year, triple its 2011 level.

Alibaba has announced 29 deals worth $16 billion since the start of 2012, expanding into everything from finance and soccer to media entertainment and taxi booking services.

In May, Alibaba bought a 10 percent stake in Singapore Post Ltd. to develop its logistics in Southeast Asia. It has also invested in Youku Tudou Inc., Intime Retail Group Co. and TangoMe Inc. and on July 15 announced plans for a video streaming service in China with Lions Gate Entertainment Corp.

One of Alibaba’s recent acquisitions, film producer Alibaba Pictures Group Ltd., said this month that its new management uncovered accounting flaws and won’t be able to publish results on time. Alibaba acquired 60 percent of the company for about $800 million in June.

In yesterday’s filing, Alibaba said it has made provisions to the value of the assets, noting that the issues at Alibaba Pictures won’t materially affect its overall financial position.