Alibaba's earnings ease some fears
Ever since Alibaba (BABA) raised $25 billion last year from its much-hyped initial public offering, the Chinese Internet company's luck seems to have gone from bad to worse. At least that was the case until it reported earnings on Thursday that beat Wall Street's expectations.
Its first post-IPO trouble came when the Chinese government accused the world's largest e-commerce company of allowing counterfeit goods to be sold on its sites, a charge the company vehemently denied.
Then came disappointing earnings in January. The company's billionaire founder and former English teacher Jack Ma also came under fire for making investments that The Wall Street Journal said raised "red flags with corporate-governance experts and investors."
After today's earnings report, shares of Alibaba, whose sites transact more merchandise than U.S.-based Amazon.com (AMZN) and eBay (EBAY) combined, rose 7.5 percent, or $6, to close at $86. They have plunged more than 17 percent since the start of the year, underperforming the broader S&P 500 index, which has scratched out a gain of 1.5 percent during the same period. Amazon shares have posted an increase of 37.5 percent, while eBay's rose 3.3 percent over that time.
Alibaba's results managed to quell worries that a slowdown in the Chinese economy would hurt its bottom line significantly. The company also showed robust growth in its mobile business, which reported 289 million monthly users in March.
During the December quarter, profit fell 28 percent to $964 million, or 37 cents per share, largely because of one-time charges. When those items are stripped out, which is how Wall Street analysts forecast earnings, earnings were 81 cents. That topped the 75-cent average forecast of analysts. Revenue rose 45 percent to $2.81 billion.
Where the company goes from here is hard to say. Speaking on CNBC earlier today, RBC lead Internet analyst Mark Mahaney noted that Alibaba will continue to invest in operations outside of China, though "To do kind of a full, direct approach into the U.S. and Europe -- the chances of them succeeding with that are probably pretty limited."
Alibaba also named Kenneth Zhang, currently chief operating officer, as its chief executive officer effective May 10, replacing Jonathan Lu, who has been named to the position of vice chairman. Zhang has been with Alibaba for eight years.
"He has the confidence of our entire management team, and there is no better person to lead Alibaba Group as we embark on the next stage of our growth on top of the strong foundation that Jonathan helped build," said Ma in a press release.
In a memo to employees that was released to the press, Ma stressed that the time had come for the company to "completely hand over management leadership to those of you who were born in the 70s." Other veteran executives relinquish some duties to up-and-comers, the company said.
Analysts are withholding judgment on Zhang, who at 42 is only three years younger than Lu, because as analyst Henry Guo of Summit Research Partners noted in an interview with CBS MoneyWatch: "Overall strategic direction is still decided by Jack Ma."