By Juro Osawa
Alibaba Group Holding Ltd. fought back against Chinese
government accusations that it permitted fake goods to be sold
through its services, while posting financial results that showed
the continued cost of pursuing mobile customers.
The Chinese e-commerce giant on Thursday said profit fell 28%
from a year earlier for the quarter ended Dec. 31, a drop it
largely attributed to expenses from giving shares to employees. But
investors focused on its revenue growth, which--while
sizable--disappointed analysts. Its shares fell about 10% in midday
trading in New York.
In a conference call to discuss the results, Executive Vice
Chairman Joseph Tsai also defended the company against accusations
made by a powerful Chinese regulator, the State Administration for
Industry and Commerce, that Alibaba's lax oversight over its sales
platforms allowed sales of counterfeit goods, bribery and other
illegal activity. The accusations, he said, were "so unfair."
SAIC couldn't be reached for comment on Mr. Tsai's
assertions.
"We have been very vocal about protesting, and we're prepared to
file a complaint," Mr. Tsai said. Alibaba has spent more than one
billion yuan (about $160 million) for the past two years to fight
fakes and protect consumers, he said.
The white paper that SAIC made public on Wednesday detailing its
allegation disappeared from its website on Thursday, a move that
Alibaba said it noted. It wasn't clear why the paper disappeared,
and a SAIC press representative said she didn't know the
reason.
The allegations were based on July discussions between SAIC
officials and Alibaba executives. The white paper said SAIC
officials had delayed the report so that it wouldn't affect
Alibaba's September initial public offering in the U.S.
Mr. Tsai said Alibaba didn't see the white paper prepared by the
regulator until it was posted on Wednesday, and that it considered
the July meeting routine.
"I want to make it absolutely clear that Alibaba never requested
the SAIC to delay the publication of any report," Mr. Tsai
said.
Both the results and the scrutiny by Chinese regulators
illustrate the challenges facing China's largest e-commerce
company, which in September raised $25 billion in the U.S. in the
world's largest initial public offering.
Alibaba dominates e-commerce in China and is often lauded as one
of its biggest private-sector success stories.
Like China's other Internet companies, Alibaba is rushing to
capture the increasing number of Chinese who use their mobile
phones and other gizmos for everything from shopping to hailing
taxis to transferring money.
Alibaba said mobile accounted for 42% of its total business on
its Chinese retail platforms during the quarter, up from 36% in the
quarter ended in September.
But it is still faces the challenge of generating revenue from
transactions on Alibaba's mobile platforms, where advertising is
less profitable than on personal computers.
In the quarter, the company's revenue from mobile services
amounted to 1.96% of the overall transactions that took place
through its mobile apps, higher than 1.87% in the previous quarter.
But that was still lower than an estimate by brokerage CLSA of
2.5%. Morgan Stanley's analysts had expected the rate to rise to
2.25%.
Alibaba's revenue from PC websites amounted to 3.23% of total PC
e-commerce transactions last quarter.
Chief Financial Officer Maggie Wu said Alibaba is developing
mobile-specific ad formats and is working to improve search
algorithms. "The long-term trend in mobile monetization is
positive," she said.
Alibaba said revenue growth was also slowed by the addition of
new personalization features to its "pay for performance"
advertisements, in which sellers bid for keywords that match
product listings on a cost-per-click basis at prices established
through an online auction system. Ms. Wu said the company "just
started this personalization effort and other efforts, so there
will be some impact for the near term."
The company also said its profit margins were squeezed slightly
by acquisitions and new initiatives, which include forays into
everything from mobile maps and browsers to digital
entertainment.
Ms. Wu said Alibaba would continue to invest in features and
contents to draw more users to its platforms. "Please remember that
we do not manage to a margin target," she said.
For the December quarter, Alibaba's earnings fell 28% to $964
million, or 37 cents a share. The company attributed much of the
drop to $241 million in expenses related to share-based
compensation to employees. It also booked a $134 million charge
related to financing-related fees from early repayment of debt, and
it faced rising tax expenses.
Excluding such items, per-share earnings rose 13% to 81 cents.
Analysts, on average, were expecting earnings of 75 cents a share,
according to Thomson Reuters.
The number of active users on Alibaba's mobile platforms rose to
265 million in December, up from 217 million in September and from
136 million a year earlier.
Earlier this week, Yahoo Inc. unveiled a plan to spin off
tax-free its nearly $40 billion of holdings in Alibaba. The spinoff
is seen giving the Chinese e-commerce giant the chance to buy its
own shares at a lower tax rate than if it tried to acquire them
now.
Alibaba said Thursday that it had $21.07 billion in cash as of
Dec. 31.
Write to Juro Osawa at juro.osawa@wsj.com
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