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Update 2 – China’s Alibaba Q1 net sags; new clients hit record

Posted on: May 7, 2009


Reuters – Thursday, May 7

* Q1 net falls 15.7 pct, but beats average forecast

* Quarterly net customer additions at record high

* Sees significantly lower full-year margin in 2009

By Nerilyn Tenorio

HONG KONG, May 6 – China’s top e-commerce company Alibaba <1688.HK> posted a sharp drop in quarterly net profit year-on-year, although beating forecasts, as higher expenses on development and obtaining users ate into margins.

Net income declined nearly 16 percent as a result of previously announced investments, the company said on Wednesday.

“The outlook has definitely turned more positive after the first-quarter results, basically because of the record customer additions,” said Dick Wei, analyst at JP Morgan, after the results.

“If macro-economic conditions continue to improve, the company will see better business in the second half, and although the CEO said they’re not expecting significant revenue growth, the prospects have definitely turned more positive”.

Alibaba, which connects millions of registered small-business buyers and sellers of Chinese products online, said registered users topped 40 million, as more buyers moved their sourcing online for higher efficiency and greater product selection.

“This financial crisis is actually helping us in a way because people still have to buy and buyers tend to switch to e-commerce at a time like this,” CEO David Wei told reporters.

Wei said he did not expect significant revenue growth in the short term, but added the company is committed to customer-focussed initiatives that it believes will lead to long-term and sustainable growth in revenue and profit.”

China’s economy has begun showing signs that the government’s fiscal and monetary stimulus measures to fight the global financial crisis may be working, with the Purchasing Managers’ Index in April inching above the growth indicator of 50, for the first time since July 2008.

SHRINKING MARGINS

Alibaba also addressed concerns over narrowing margins since it lowered its membership fees for exporters by 60 percent in 2008 to attract more traders.

On Tuesday, Alibaba announced it would raise the fee for international members five-fold, effective June 15, in return for an upgraded package of services, although international members account for only 2 percent of the company’s revenue.

The company expects its full-year margin will be significantly lower than that of 2008 due to investments, Wei said in an accompanying statement.

Customer net additions for the quarter reached a record 49,544, bringing the number of paying members to 481,575, up 47 percent from a year earlier.

The global e-trade website operator earned 253.4 million yuan in the three months ended March, down from a profit of 300.7 million yuan a year earlier, but up from 199.4 million yuan in the last three months of 2008.

The earnings result beat an average net profit forecast of 213.85 million yuan by four analysts polled by Reuters.

In March, Alibaba projected its profit margins would shrink in 2009 as the company picks up the pace of investment, including marketing, staff hiring and a new data centre.

Shares in Alibaba rose nearly 1 percent to close at HK$10.24 on Wednesday, ahead of the results. The stock gained 27.6 percent in the first quarter of 2009 in contrast to a 5.6 percent fall in Hong Kong’s benchmark Hang Seng Index in the same period. (Additional reporting by Michael Wei, Joanne Chiu and Donny Kwok; Editing by Chris Lewis and Sharon Lindores)

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