Daily Management Review

Alibaba Misses Quarterly Target after Much Hyped Investment Announcement in Suning Just Two Days Ago


08/12/2015




Alibaba Misses Quarterly Target after Much Hyped Investment Announcement in Suning Just Two Days Ago
After barely a couple of days after the mega announcement of taking up a 20% stake in Chinese electronic retailer Suning, Alibaba Group Holding Ltd's missed the revenue forecasts for the second quarter of the current fiscal.

The e-retailer giant missed the forecast by a large margin even as its revenue for the three months ended June rose 28 percent. The company also recorded a slow growth rate that was the lowest in more than three years.

A poll by 298 analysts conducted by Thomson Reuters Smart Estimate poll had set a target of $3.39 billion while the company reported quarterly revenues of $3.27 billion.

The drop in revenue against the projected revenue by experts was attributed primarily to the slow growth in the gross merchandise volume (GMV) -- the total value of goods transacted across Alibaba's platforms. The GMV rose by 34 percent to reach 673 billion yuan ($105 billion) which was the slowest that the e-retailer giant had recorded in more than three years.

The company however reported slightly bigger earnings per share at of $0.58 per shares on revenues of $3.39 billion for the June quarter while the analysts had expected the number to be at $0.59per share.
Alibaba is resorting to branching out form its core business of on-line-only shopping platforms to other modes, as is evident from its agreement with Suning, with the aim to counter the slowdown in revenue growth and the total value of goods transacted over its websites. The market value of Alibaba stands at $194 billion.

"(We) made significant progress monetizing our mobile traffic, with our mobile revenue exceeding 50 percent of our total China commerce retail revenue for the first time," said Maggie Wu, Alibaba's chief financial officer, in a press release on Wednesday.

Alibaba would make use of the brick and mortar stores of Suning Commerce Group Co Ltd – one of the largest physical retailer of electronics products, after the two companies struck a deal on Monday where Alibaba will invest $4.6 billion that have Alibaba a 20 percent stake in Suning Commerce Group Co Ltd.

On the other hand, Alibaba would also be able to now offer electronic products to its customers as Suning  would open a virtual store on Alibaba’s website.


Alibaba hopes that while on hand the offer for electronic products would drive up traffic to the website and increase revenues, the company would also make use of the strong logistic support of Suning to deliver products faster to its customers, some within just 2 hours of ordering.

This agreement is also seen a direct challenge to its greatest competitor JD.com which surpassed Alibaba in offering and selling electronic products at present. Monday’s announcement of the agreement between Alibaba and Sinung had resulted in a 6 percent drop in the share value of JD.com at NASDAQ o Tuesday.

Outlining the future strategy of the company on Wednesday, in a press release by Alibaba’s Chief Executive Daniel Zhang said that the priorities for the company are internationalization, beating out competition in mobile, expanding into rural China and investing in cloud computing.

In the first quarter of the current fiscal, the non-GAAP net income of the company was $1.5 billion, which was 30 percent more compared to the same period a year ago.

A $4 billion two-year share repurchase program was announced by the company.

At the new York stock exchange, Alibaba’s shares have come down by 26 percent since the beginning of the year and on Wednesday were trading at down 6.9 percent before the markets open on Wednesday.


(Source: www.reuters.com & www.streetinsider.com)






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