Mobile shopping lifts Chinese titan's results, dispelling old
doubts and driving up stock
By Liza Lin
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 18, 2017).
SHANGHAI -- Alibaba Group Holding Ltd. reported a surge in
revenue and profit on surprisingly strong online sales, sending its
shares to new altitudes Thursday -- a scenario few investors saw
coming two years ago.
Back then, Alibaba investors were wary of slowing revenue growth
for the e-commerce giant and a costly battle for mobile market
share in China's online retail marketplace.
Today, naysayers are hard to find as Alibaba has filled its
coffers by tapping into China's mobile shopping spree with its
Taobao shopping app. Investors have sent Alibaba's share price
soaring 87% since the start of the year.
On Thursday, Alibaba said its fiscal first-quarter earnings
nearly doubled from the year-earlier period to $2.2 billion. Sales
rose 56%, to $7.4 billion, beating analysts' estimates.
Alibaba shares closed up 2.8% at $163.92 in New York trading,
above the stock's record close Wednesday of $159.50 a share. The
stock's more than 80% advance this year compares with gains of
about 28% for Amazon.com Inc. and 9% for the S&P 500.
Alibaba is cruising on a wave of spending by China's growing
middle class, which now numbers about 130 million people, nearly
all carrying smartphones. With consumer-to-consumer selling on its
Taobao app and website, and its Tmall online marketplace for
branded products, Alibaba has captured a huge portion of China's
online retail activity, not to mention a trove of consumer-behavior
data. By adding video and other content innovations to Taobao,
Alibaba has managed to keep shoppers engaged and coming back.
"Alibaba has been very successful in transforming the business
to mobile from the desktop," said Hans Chung, a Portland, Ore.,
analyst with Pacific Crest.
Just as Facebook had to reposition to adapt to consumers' needs
as they shifted to mobile, so Alibaba has faced challenges, Mr.
Chung said. Alibaba in 2015 posted its slowest revenue growth in
more than three years, and investors, spooked by its seeming
fallibility, sent shares plunging almost to the stock's 2014
listing price.
Since then, Alibaba has taken large strides in improving users'
experiences with its app, leveraging its technology to personalize
shoppers' home pages and to send them targeted ads. Alibaba's
mobile monthly active users now exceed 520 million.
Alibaba also introduced new features to grab Chinese consumers'
attention. The Hangzhou firm caught on early to China's love for
live-streaming video and introduced live-streaming marketing
channels on its Taobao app. They feature short-form video and
consumer forums to keep buyers on the app longer.
Alibaba's fortunes have benefited as higher incomes have spurred
China's middle class to make bigger purchases and to seek upgrades.
Whereas Chinese buyers once sought out e-commerce platforms
offering cheaper prices and variety, now they search for
higher-priced cross-border products and luxury brands.
"If you believe China is going to be a lot bigger in a decade
than it is today, and that the consumer in China will spend more
money than they do today, this company will benefit," said Mitchell
Green, managing partner of Lead Edge Capital and an Alibaba
investor.
Beneath its rosy financials, though, Alibaba has a few
thorns.
The Securities and Exchange Commission has launched an inquiry
into Alibaba's accounting practices and has asked the company for
more details about a delivery affiliate and operating data from an
online discount festival. Since making the investigation publicly
known in May, Alibaba has yet to release any additional information
or updates on it.
And the Taobao website was included on a U.S. agency's list of
global marketplaces known for selling counterfeit and pirated goods
last year, while critics say the company hasn't done enough to keep
fakes off the site.
In a rapprochement with luxury-goods makers, Alibaba reached an
agreement this month with Kering Co., the French parent of luxury
labels Gucci and Saint Laurent, to end a legal battle over fake
designer merchandise sold on Alibaba websites and to work together
to pursue counterfeiters. Alibaba last week said it cut the time
needed to act on a fake-goods complaint from a rights holder to
less than 24 hours, down from as long as four days. And it has
opened a dedicated space on Tmall stocking high-end products from
fashion brands such as Loewe, Burberry and Hugo Boss.
Meanwhile, JD.com Inc., a much-smaller Alibaba rival, is gaining
ground, forcing Alibaba to step up coupons and discounts in recent
months, analysts say. JD, which reported a second-quarter loss
Monday, plans to open a luxury platform on its online retail site,
ratcheting up the competition Alibaba faces for China's high-end
shoppers.
Founded 18 years ago in an East China city apartment by a group
led by Jack Ma, a former English teacher turned billionaire,
Alibaba operates as an internet marketplace, running platforms for
sellers, including individuals and small and big businesses, to
connect with consumers. The company's core commerce unit earns its
money in part through merchant commissions and paid
advertising.
In pre-IPO meetings with investors, Alibaba was pitched as an
opportunity to invest in the growth of China's middle class, and
investors clamored for access to its shares despite concerns about
its corporate governance.
At the time, Alibaba operated through a series of "variable
interest entities" in China owned by senior executives, including
Mr. Ma, rather than by Alibaba's foreign shareholders. It was run
with a partnership structure where 30 partners held most of the
corporate control. As a result, Alibaba was barred from listing in
Hong Kong.
For nearly a year after its initial public offering of shares,
Alibaba's IPO was deemed an early success as it rose 38% on its
first day of trading and stayed above its $68 IPO price. Yet by
August 2015, amid a global market selloff, Alibaba reported its
slowest quarterly revenue growth in more than three years. It's
share price hovered on either side of the IPO line for the next
year.
Despite Alibaba's surge in 2017, China's e-commerce growth is
slowing, and Alibaba is looking to new ventures to maintain
momentum, including providing services such as logistics to online
merchants and physical store retailers. It said Thursday it plans
to take part in a $1.1 billion investment in PT Tokopedia, an
Indonesian e-commerce marketplace connecting small businesses with
consumers, the Jakarta-based company said Thursday. The investment
follows Alibaba's $1 billion investment to raise its stake in
Southeast Asian online retailer Lazada. It has also sought stakes
in India's PayTM.
In an interview last month, Daniel Zhang, Alibaba's chief
executive officer, said Chinese consumers are seeking personalized
shopping experiences and recommendations. "The mall of the future
will become a consumer community, a service center, an experience
center," he said.
--Maureen Farrell in New York contributed to this article.
Write to Liza Lin at Liza.Lin@wsj.com
(END) Dow Jones Newswires
August 18, 2017 02:47 ET (06:47 GMT)
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