Alibaba to buy back $4 bil­lion of stock af­ter share plunge

The Pak Banker - - COMPANIES/BOSS -

Alibaba Group Hold­ing Ltd. will buy back as much as $4 bil­lion of stock as it tries to re­vive a share price bat­tered by con­cerns about the slow­ing Chi­nese econ­omy less than a year af­ter go­ing public.

The e-com­merce op­er­a­tor will buy the shares over a two-year pe­riod, mainly to off­set di­lu­tions such as from its com­pen­sa­tion pro­grams. Wed­nes­day's an­nounce­ment came as the com­pany posted first- quar­ter sales that rose at the slow­est pace in at least three years and posted trans­ac­tion vol­umes that missed es­ti­mates. Shares fell more than 6 per­cent in pre-mar­ket trad­ing.

Alibaba's plunge in mar­ket value of about $100 bil­lion, a de­cline big­ger than Gold­man Sachs Group Inc., since Novem­ber has been driven by a Chi­nese econ­omy ex­pand­ing at the weak­est rate since 1990 and law­suits con­cern­ing sales of coun­ter­feit goods. The com­pany's rev­enue in the three months ended June rose 28 per­cent to 20.2 bil­lion yuan ($3.2 bil­lion), down from an av­er­age of 56 per­cent in the pre­vi­ous 12 quar­ters.

"Online shop­ping in larger cities in China has al­ready reached sat­u­ra­tion," Li Muzhi, a Hong Kong-based an­a­lyst at Arete Re­search Ser­vice LLP, said by phone be­fore the earn­ings. "Alibaba needs to in­vest in new ar­eas to search for other av­enues of growth."

Alibaba fell to $73 in pre-mar­ket trad­ing. While the shares have never traded be­low the $68 paid in Septem­ber's ini­tial public of­fer­ing that raised a record $25 bil­lion, they have fallen 35 per­cent from Novem­ber's record close of $119.15.

Gross mer­chan­dise vol­ume, which mea­sures trans­ac­tions on its Chi­nese re­tail mar­ket­places, rose 34 per­cent to 673 bil­lion yuan in the quar­ter, short of the 38 per­cent growth ex­pected by an­a­lysts.

Alibaba is be­ing squeezed by price cuts and com­pe­ti­tion in China's big­ger cities, a shift to shop­ping on smart­phones that gen­er­ates less advertising rev­enue and the coun­try's slow­est eco­nomic growth since 1990.

That hasn't dulled bil­lion­aire Chair­man Jack Ma's ap­petite for ex­pan­sion. On Mon­day, he an­nounced a $4.6 bil­lion in­vest­ment in Sun­ing Com­merce Group Co. to get more ac­cess to the elec­tron­ics re­tailer's net­work amid in­ten­si­fy­ing com­pe­ti­tion from online shop­ping site JD.com Inc.

"Online shop­ping in larger cities in China has al­ready reached sat­u­ra­tion," Li Muzhi, a Hong Kong-based an­a­lyst at Arete Re­search Ser­vice LLP, said by phone be­fore the earn­ings. "Alibaba is also pro­vid­ing heavy dis­counts on its group-buy­ing site to win mar­ket share."

Alibaba brought for­mer Gold­man Sachs Group Inc. part­ner Michael Evans as pres­i­dent this month to help its global push in Au­gust. Ma is try­ing to di­ver­sify Alibaba's busi­nesses while si­mul­ta­ne­ously tap­ping more of the 594 mil­lion Chi­nese who ac­cess the In­ter­net from their smart­phones and tablets. The strat­egy in­cludes ex­pan­sion into en­ter­tain­ment, health care, lo­ca­tion-based ser­vices push­ing its own YunOS smart­phone op­er­at­ing sys­tem. The com­pany is putting its online movie tick­et­ing busi­ness and movie crowd-fund­ing plat­form into Alibaba Pic­tures Group Ltd.

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