Alibaba Revenue Jumps but Misses Estimates

Just a day after a surprisingly blunt exchange with a Chinese regulator that unnerved investors, the e-commerce giant Alibaba Group on Thursday reported a 40 percent revenue increase in its final quarter of 2014, although the total was weaker than expected.

The company counted brisk sales during the Singles' Day e-commerce holiday in November in China, but it is facing an economic slowdown in the country and overall sales did not match the high expectations of analysts.

Worsening matters for Alibaba, which raised $25 billion in an IPO last year, the run-in with China's main corporate regulator over its sale of fake goods is prompting concerns from investors. In New York trading Thursday, the company's shares closed more than 8 percent lower.

Alibaba said that in the quarter that ended December 31, its net profit jumped to $2.1 billion (roughly Rs. 12,977 crores), above the $1.9 billion (roughly Rs. 11,741 crores) estimated by 23 analysts polled by Reuters, using figures derived from nonstandard accounting rules. Alibaba's revenue rose to $4.2 billion (roughly Rs. 25,954 crores) from a year earlier but missed the $4.5 billion (roughly Rs. 27,808 crores) estimate of 27 analysts polled by Reuters.

Alibaba also reported net profit using generally accepted accounting principles of $964 million (roughly Rs. 5,957 crores), a drop of 28 percent from a year earlier. The company cited costs related to stock awards before its listing, taxes and fees.

Hovering over the results was a white paper about Alibaba issued Wednesday by the State Administration for Industry and Commerce, or SAIC, a Chinese regulator. The letter said the agency had discovered "the long-term existence of illegal problems regarding the management of transaction activity and other issues."

The agency said that it presented findings to Alibaba executives in a July 17 meeting at the company's headquarters in the eastern city of Hangzhou, but that it had kept the results confidential at the time so as "not to affect Alibaba's preparations for a stock market listing." Alibaba began trading on the New York Stock Exchange in September.

Although the result of the SAIC investigation is not yet clear, by Thursday afternoon Alibaba appeared to have scored a victory against the regulator when the white paper was removed from the agency's website without explanation.

Pointing out that fact, Alibaba's executive vice chairman, Joseph C. Tsai, called the methods and tactics of the SAIC "flawed" and said the company "felt compelled to take the extraordinary step of preparing a formal complaint to the SAIC."

In recent years, Alibaba's stupendous growth has been a double-edged sword. The company's huge scale has allowed it to earn billions and affect the lives of millions, but its size has attracted increased government scrutiny.

In Alibaba's first run-in with China's opaque and at times arbitrary government regulators since becoming a public company, the criticism from the SAIC was a reminder that an investment in Alibaba could be affected by Chinese politics. Managing that risk by appeasing regulators while also placating the concerns of investors not accustomed to capricious Chinese governance is one of the company's greatest challenges now that it has listed.

Seeking to do just that, Tsai emphasized the company's initiatives to stop the sale of fake goods on its shopping sites, while also highlighting Alibaba's honesty and integrity.

Addressing concerns that Alibaba knew of the SAIC's investigation before its listing and did not disclose it to would-be investors, Tsai said the company saw the white paper when it was posted online Wednesday.

"Like all international companies across the globe we from time to time meet with regulators in the normal course of business," he added. "The meeting last July was no different, and at this meeting we discussed working together to create a process to address key areas of consumer protection and orderly marketplace operations in online commerce."

Tsai went on to say that the company would add 300 new employees to a team of thousands of workers who regularly search Alibaba's primary e-commerce site, Taobao, for fake goods posted by small vendors.

Alibaba is no stranger to confrontation with regulators and officials. Over the past two years, its expansion into finance has dismayed China's central bank and the nation's securities regulator. The founder of Alibaba, Jack Ma, known for his direct and flamboyant approach to sensitive matters, even wrote an opinion article attacking financial regulators for People's Daily, the mouthpiece of the Chinese Communist Party.

Tsai was more restrained, answering an analyst's question about the white paper by pointing investors to the still growing numbers of Chinese who visit the company's sites on PCs and smartphones to shop. The company now has 334 million annual active buyers and 265 million who regularly use mobile phones to gain access to its services.

"These people wouldn't come to our site to purchase things if they're getting bad-quality stuff on our site," Tsai said. "It's a vote of confidence from our consumers that we're seeing."

© 2015 New York Times News Service