Alibaba Growth Slows as China Economy Cools; Buyback Planned

Alibaba Group Holding Ltd.'s quarterly sales rose at the slowest pace in at least three years and transaction volumes missed analyst estimates amid a weakening Chinese economy. Shares fell.

Revenue rose 28 percent to 20.2 billion yuan ($3.2 billion) in the three months ended June, down from an average of 56 percent in the previous 12 quarters. The company also announced plans to buy back $4 billion of stock.

The slowing growth stems from e-commerce market saturation in China's larger, wealthier cities and the company's strategy of shifting to services over smartphones and tablets, which generate less revenue from ads compared with desktop computers. Investor confidence has been shaken, with the company's market value plunging $100 billion, amid a domestic economy growing at the weakest pace since 1990 and lawsuits over counterfeits.

"The growth slowdown will continue to be a problem going forward," said Li Muzhi, a Hong Kong-based analyst at Arete Research Service LLP. "Investors don't think Alibaba can uncouple from the overall slowdown in China, especially when the majority of its revenue still comes from within the country."

Alibaba fell as much as 7.9 percent on Wednesday to $71.23, heading for their lowest in 11 months. The shares have never traded below the $68 paid in September's initial public offering that raised a record $25 billion.

Slowing Economy

The e-commerce operator will purchase its shares over a two-year period, mainly to offset such dilutions as compensation programs, in its first buyback since listing.

Gross merchandise volume, which measures transactions on its Chinese retail marketplaces, rose 34 percent to 673 billion yuan in the quarter, short of the 38 percent growth expected by analysts.

That hasn't dulled billionaire Chairman Jack Ma's appetite for expansion. On Monday, he announced a $4.6 billion investment in Suning Commerce Group Co. to get more access to the electronics retailer's network amid intensifying competition with online shopping site JD.com Inc.

Ma is trying to diversify Alibaba's businesses while simultaneously tapping more of the 594 million Chinese accessing the Internet through smartphones and tablets.

The strategy includes expansion into entertainment, health care and location-based services, while pushing its own YunOS smartphone software.

"We manage our business and execute our growth strategy for the long term, and short-term movement won't affect our strategy," Chief Executive Office Daniel Zhang said during a conference call.

Overseas Efforts

Alibaba's overseas efforts have seen it start e-commerce sales in Russia, Brazil and India through AliExpress. Founded in 2010, AliExpress is the top shopping site in Russia and Brazil.

Alibaba named former Goldman Sachs Group Inc. partner Michael Evans as president this month to help its global push.

As China introduces policies that make it cheaper to import overseas goods, Alibaba is competing with JD.com to introduce more brands from the U.S. and Europe. Thousands of American products, including Converse Inc. sneakers and Procter & Gamble Co. toothpaste, are available to Chinese shoppers through Alibaba's websites.

As it deals with the slowing Chinese economy, Alibaba also battled criticism from the government. In January, a 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 to sell fake wine and handbags.

For more, read this QuickTake: Alibaba

Source: Alibaba Growth Slows as China Economy Cools; Buyback Planned