Alibaba misses expectations — $4 billion stock buyback planned
HONG KONG — A year ago, Alibaba executives were preparing a roadshow that paved the way for one of the biggest initial public offerings in history.
As the company reported its earnings Wednesday, saying revenue rose a less-than-expected 28 percent, it appeared that the excitement that drew bankers across the globe has dulled.
Faced with a slowing economy, new challenges making money on smartphones and a little bad luck, Alibaba’s stock has fallen about 35 percent from its November highs, and was just 14 percent above the IPO price of $68 before the latest results were released.
Yahoo impact
The drop has had a big impact on Sunnyvale’s Yahoo, which can’t sell its shares until next month.
As part of its efforts to shore up its share price, Alibaba said Wednesday that it would authorize a $4 billion share buyback program over two years. The program is intended to help offset dilution of shares from employee compensation tied to stock.
In a rare moment speaking for Alibaba’s founder, Jack Ma, the company’s executive vice chairman, Joe Tsai, said that neither of them would sell shares. Their first opportunity to do so is next month.
“I usually don’t speak on behalf of Jack, but on this one he’s authorized me to talk on his behalf. Jack and I have zero intentions to sell other than a small amount that is in our charitable trusts,” Tsai said.
Tsai said Yahoo’s and SoftBank’s shares also unlock next month. Since Yahoo announced its intention to spin off its Alibaba stock in January, those shares have lost more than $11 billion in value.
Alibaba’s shares fell 5 percent Wednesday after the news of the revenue miss.
Alibaba has faced a turbulent first year as a public company, but analysts said there are signs that better growth lies ahead. In June, the company warned that a government ban on selling online lottery tickets and a decrease in fees for its group-buying marketplace would affect earnings.
Its share price on Tuesday was also hurt by the Chinese central bank’s moves to weaken the renminbi.
“I think most of the disappointment is from the monetization rate, which dropped after the IPO,” said Elinor Leung, an analyst at the brokerage and investment group CLSA, referring to the amount the company makes from each user of its services. “The reasons for the monetization drop are temporary, and don’t change the fundamentals of the business.”
In its earnings statement Wednesday, Alibaba said that in the quarter that ended June 30, revenue had risen to $3.27 billion. Net income that excluded investment gains, which does not meet generally accepted accounting principles, was $1.5 billion, in line with analysts’ expectations.
Big changes
Much has changed for Alibaba in the year since its listing. The company appointed a new chief executive, Daniel Zhang; a new president in charge of international expansion, former Goldman Sachs executive Michael Evans; and has pushed efforts to find growth. It is looking hard at new areas, including brands abroad and attracting users in China’s lessaffluent rural areas.
The company is trying to offset a drop in profit in recent quarters that largely stems from troubles in the Chinese economy. Alibaba has also experienced a tough transition to smartphone advertising and a slowing growth rate in the number of Chinese Internet users.
Still, the company pointed to signs it is getting better at making money from smartphones. Alibaba said in its financial release that mobile revenue for its online marketplaces was $1.3 billion, accounting for 51 percent of its retail marketplace revenue in the quarter.
The hiring of Evans followed a series of accords with 20 different global clothing brands, whose products Alibaba agreed to begin selling on its e-commerce sites. The hope is that the new exposure on Alibaba’s site will connect foreign companies with middle-class and newly wealthy Chinese looking for the status and quality of foreign products.
During the earnings call, Zhang said that along with bringing brands into China, the company would also continue trying help small Chinese businesses sell across the globe.
“We have a very clear international strategy, and this is a core strategy for the coming decades,” he said.
Alibaba’s push to grow in China’s rural areas was underscored this week when it laid out $4.6 billion —the most the company has spent to date on a strategic investment — to take a 20 percent stake in the Chinese retailer Suning.
Suning has a logistics and retail store network that covers China’s many remote and less-developed areas, where those least likely to shop online live and work.
‘Very powerful’
Chi Tsang, an analyst at HSBC, said that although Alibaba’s investment in Suning might alienate other retailers, the combination of Alibaba’s online skills and Suning’s rural presence would be “very powerful.”
“I think relative to a year ago, the business has changed,” he said.
He added that Alibaba’s share price was low given the success and expansion of its online finance and entertainment affiliates, both of which would most likely provide a hefty lift to the Alibaba Group.
He also said that the appointment of Zhang seemed to have pleased the company’s employees.
“My sense is the rank and file really like Daniel Zhang,” he said. “He hits a high bar, and it’s a good transition.”