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Open Sesame? Alibaba one year on from IPO
One year on from its barnstorming debut on the New York Stock Exchange, Chinese e-commerce behemoth Alibaba is weighed down by more brickbats than bouquets amid fiery competition and slumping market value.
Shares have tumbled nearly 30 percent since launching the world's largest initial public offering on September 19 2014, shaving off nearly $140 billion from the company's market value since November's peak, according to Reuters.
The company's second-quarter earnings report in August failed to excite investors, with annual gross merchandise volume (GMV)- considered a proxy for gross sales- rising at its slowest pace in over three years . More weakness is expected after the firm's head of investor relations said two weeks ago that GMV for the September quarter was below expectations.
Most recently, a prediction of a further 50 percent decline in Alibaba's stock price by Barron's triggered a swift rebuke from Hangzhou headquarters, prompting worries of more price declines ahead.
In response to concerns about poor revenues, Robert Christie, Alibaba's vice president of international media, told CNBC during a phone interview that the company was more focused on the long-term and does not manage from quarter-to-quarter, adding that the firm was unable to discuss forward looking revenues.
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Unfortunately, Alibaba's received a good deal of bad news in the past year, explained Tim Barrett, retailing analyst at Euromonitor.
"It's taken some hits amid rising competition from companies like JD.com (NASDAQ: JD), issues with mobile computing, and there are consumer expenditure worries across China."
Fellow Chinese e-commerce firm JD.com, which is also listed in New York, saw second-quarter revenue soar 61 percent on year, well ahead of Alibaba's 29 percent, while annual GMV climbed 82 percent, versus Alibaba's 34 percent.
To be sure, Barrett notes that JD.com is only growing faster because it's smaller. Of the total business-to-consumer market, JD.com only has a 14.4 percent share of internet retailing in China as of 2014 whilst Alibaba has 43.5 percent, he said.
"Additionally, Alibaba faces competition from Vipshop and Amazon, among others. These companies might not have the scale to compete with Alibaba, but they specialize in specific products, services, or markets, which might limit Alibaba's product categories and offerings expansion," said R.J. Hottovy, Morningstar strategist in a recent note.
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Alibaba is also having trouble with its transition to mobile computing.
"It's take rate with mobile sales-both via T-mall and Taobao-is actually smaller than when consumers buy over PCs. This is an issue that needs to be solved," Barrett noted.
But Christie points out that Alibaba currently boasts 307 million active buyers on mobile.
The perennial issue of counterfeit products and infringing goods also remain a stubborn thorn in Alibaba's side.
"On some of their sites, there's too much counterfeit stuff and when you're a U.S. listed company, you need to have brand integrity for what you sell. Alibaba argues that they're not in control but they need to keep control," warned Bruce Rockowitz, CEO and vice chairman of Global Brands Group.
Global Brands is currently considering a joint venture with Alibaba and JD.com, and Rockowitz told CNBC that he was optimistic on the outlook for both firms.
In Alibaba's defense, the firm says it has the most aggressive anti-counterfeit program of any e-commerce company in the world, pointing to its more than 2000 staffers using cloud computing and data mining tools to identify counterfeits as well as its work with local authorities to fight the issue.
"Counterfeiting is a China problem; it's not an Alibaba problem. For the year ending December 2014, we took down 90 million counterfeit products so we are taking this very seriously," Christie noted.
For others however, Alibaba's issues are much more fundamental.
"What we're concerned about are the company's investments in dozens of other firms. There isn't enough disclosure to know whether Alibaba is investing or whether these are just expenses," Herb Greenberg, partner at independent research firm Pacific Square, told CNBC.
This lack of disclosure could lead to inflated profits, or hidden losses, he said. In comparison, JD.com has fewer concerns about circular transactions and it does a much better job of disclosing information, he added.
But Alibaba immediately dismissed those concerns, with Christie telling CNBC that every investment the firm has made since going public reflects the company's long-term strategy, which he described as being soundly transparent to investors.
"We follow the law wherever we do business."
Moreover, China's strict mobile payment regulatory scrutiny is another major obstacle to Alibaba. Beijing plans to limit the daily amount individuals can purchase via third-party payment systems like Alipay, Alibaba's finance arm, media reported last month.
"Considering that roughly 80 percent of transactions on Alibaba's China retail marketplaces were settled through Alipay, any type of regulatory tightening and supervision policy could significantly affect Alibaba's business operations," noted Morningstar's Hottovy.
On a broader level, as the world's second-largest economy experiences a bout of financial market volatility and its slowest pace of growth in six years, investors are afraid the negative sentiment will spread to consumer spending and retailers like Alibaba. August data showed Chinese retail sales rose by a better-than-expected 10.8 percent on year, but that was still little changed from July's 10.5 percent increase.
"Alibaba is a company that is designed to be around for the next 120 years and every element of our business strategy reflects that," countered Christie.
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