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Alibaba Fails to Impress

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Alibaba Fails to Impress

Aug 13 2015, 08.44am GMT


The law of gravity, which says that everything that goes up, must come down, struck again as Alibaba shares, which had peaked at 76% above last September’s IPO price of $68 a share, have now fallen back to be just below 8% above the share offer price, currently trading at around $73.40 per share.

The company has faced multiple challenges since going public, many of which have impacted on its performance in the second quarter, according to the earnings report released on Wednesday. The costly campaign to attract mobile phone users, while at the same time dealing with a conglomerate that has moved into fields as diverse as logistics, cloud computing and show business, impacted on the company's’ quarterly results. Q2 growth in revenue, which was the slowest in more than three years, was accompanied by a falloff in demand from Chinese consumers, adding to the company's problems.

The company, which is based in Hangzhou in China, reported an increase in business with consumers using mobile devices saying that there had also been an increase in revenue volume per transaction. Growth in this market has been a key concern for Alibaba as its rivals target the increasing number of Chinese consumers who are moving over to smartphones.

Alibaba, which has been lagging behind its rivals in areas such as electronics, has taken action to remedy this problem. During the week, it announced a $4.5 billion tie up with Chinese store based retailer, Suning Commerce Group Co. Ltd, a move with the objective of increasing its range of electronic gadget offerings, improve its logistics capability and to provide personal service to consumers.

Reviewing the quarter, Daniel Zhang, Chief Executive Officer of the Alibaba Group said, “We had a strong quarter and we continued to build the foundations for future growth. We focused our efforts on building healthy GMV (Gross Merchandise Value) growth, delivering the best consumer experience, and improving the quality and sustainability of merchants doing business on our marketplace.” He added, “We will continue to closely monitor the change of the macro-economy and consumer behavior, but we are confident to grow our business in the long term.”

Investor sentiment does not appear to show the same degree of confidence as the Alibaba CEO as the share dropped $5 or 6.46% after the earnings report had been released. The stock picked up slightly during Wednesday to close at $ 73.50.

Revenue for the quarter ended 30 June grew by 28% to $3.26 billion which did not meet analysts’ forecasts of $3.39 billion.

Also, during the period under review, the Chinese government issued an order suspending all online lottery sales. This was cited in the report as one of the factors that had a negative impact on the company’s revenue.

Profit for the quarter was almost double that of the same period the previous year, but largely as a result of a one-time gain from the company’s movie business.

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