Alibaba Group Holding Ltd’s (阿里巴巴) underwhelming holiday quarter performance and an escalating war of words with a powerful Chinese industry regulator highlight two major risks to its seemingly fairy-tale ascent: politics and the shift to mobile commerce.
The Chinese e-commerce giant has acquired a rosy aura since its record-breaking initial public offering last spring, revealing growth rates and volumes that dwarfed industry stalwarts Amazon.com Inc and eBay Inc.
Now, Wall Street is cutting back on expectations in part because of fears that Chinese regulators are sharpening their scrutiny of counterfeit products on e-commerce sites, an endemic problem that Alibaba and others have fought for years.
“As the China-factor gets tempered, then excitement [around Alibaba] is going to get tempered as well,” said Youssef Squali, global head of Internet and media research at Cantor Fitzgerald, after cutting estimates for this year’s revenue and earnings.
“At some point, you’re not going to dominate the market and you’re just going to grow in line with the market. But we’re not there yet,” Squali added.
The gradual migration of users to mobile platforms threatens to weigh on the top line.
On Thursday, Alibaba disappointed with 40 percent revenue growth and a monetization rate, the percentage of ecommerce transactions it earns, below Wall Street expectations. That was due to the rising proportion of purchases on mobile devices, from which Alibaba earns less. Its stock fell 9 percent.
Alibaba-watchers were also treated to the unusual sight of a company, regarded as a standard-bearer for a burgeoning technology industry, trading barbs with a government body.
China’s State Administration for Industry and Commerce (SAIC) surprised investors by publishing a scathing report — since pulled from its Web site — lambasting the company for not doing enough to suppress counterfeits.
“Alibaba does outline anti-counterfeit measures in its filings, but the SAIC report puts the effectiveness of these measures into question,” Stifel analysts Scott Devitt and George Askew wrote on Thursday as the brokerage downgraded Alibaba to a hold from a buy. “The perception issue may persist.”
It is unclear whether the SAIC intends any specific action, but Alibaba is sensitive to accusations about its efforts to suppress counterfeit products.
Meanwhile Beijing, facing persistent US pressure, has declared protecting intellectual property a government priority.
Alibaba vice chairman Joseph Tsai (蔡崇信) fired back on Thursday, accusing the influential body of “flawed” methodology and preparing to file a formal complaint.
To be sure, Alibaba’s 40-plus percent growth in revenue and gross merchandise value remains the envy of its rivals. It has been able to sustain that pace thanks to its 80 percent share of a Chinese online market that industry executives agree still has enormous room to grow.
However, the world’s largest economy is poised to decelerate after years of eye-popping growth. Economists also warn of a property market deflation and pressure on wage growth.
Alibaba chairman Jack Ma (馬雲) last week brushed aside fears that a slowdown may squeeze his company. Yet while e-commerce should continue to grow in the Middle Kingdom, the increasing shift to mobile commerce means that the amount Alibaba actually earns will come under downward pressure.
Two-thirds of the company’s sales still come from its consumer-to-consumer marketplace Taobao, where it primarily earns revenue from advertising and marketing services. As with Google Inc and Facebook Inc, Alibaba charges less for marketing on mobile devices than on computers.
It reported a monetization rate of just below 2 percent from mobile, which now comprises 42 percent of overall gross merchandise value versus 36 percent in the previous quarter.
“Near-term predictability of growth and margins has deteriorated given the company’s continued transition to mobile and changes to its user experience,” Squali wrote in a research note. “This is amplified by recent tensions with SAIC.”
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