Alibaba Earnings Suffer Amid Its Push for Shopping on Mobile Devices

The Chinese E-Commerce Giant's Revenues Failed to Meet Analysts' Expectations

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Alibaba's headquarters in Hangzhou, China
Alibaba's headquarters in Hangzhou, China Credit: Nelson Ching/Bloomberg

Chinese e-commerce giant Alibaba Group's sales were below analysts' estimates as founder Jack Ma spent more money to attract customers on mobile phones.

Revenue was $4.2 billion in the quarter ended Dec. 31, compared with the $4.4 billion average of 25 estimates, the Hangzhou-based company said in a statement. Net income fell 28% to $957 million because of compensation expenses and a one-time charge. That compared with the $1.4 billion average of 19 analyst estimates compiled by Bloomberg.

Mr. 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 initial public offering and a record $9.3 billion in transactions during a Nov. 11 sales 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 fee it charges will be lower than what they charge for on desktops."

Alibaba is heavily reliant on advertising for its revenue.

Shares of Alibaba fell 8% in pre-market trading in New York. The shares have gained more than 40% since the company sold stock at $68 apiece in its September initial public offering, raising a record $25 billion.

'Credibility crisis'

A day earlier, the Chinese government said that 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 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 company responded by saying its Taobao Marketplace is improving its technology and procedures to counter fakes, and it decided to file a complaint against the SAIC official who oversaw a meeting with Alibaba representatives in July to discuss the claims.

Alibaba had 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.

Investors backed Alibaba's IPO on its ability to expand globally with shopping platforms Taobao, and AliExpress just 15 years after being founded in Mr. 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.

Mr. 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.

Mr. 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," a 3-D computer-animated comedy starring Adam Sandler, e-mails revealed by Sony hackers showed.

--Bloomberg News and Ad Age Staff--

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