Alibaba.com banks on expansion
Alibaba.com, the world's leading business-to-business e-commerce company, is betting on an aggressive expansion plan and a dominant market share on the mainland to help it ride out the economic crisis.
However, prospects for the company, part of Hangzhou-based Alibaba Group, are expected to get worse before they get better over the next 12 to 18 months, according to analysts.
Their forecast followed Alibaba. com's report on Thursday last week of a 24.5 per cent net profit rise last year to 1.2 billion yuan (HK$1.36 billion) from 967.8 million yuan a year earlier. A significant increase in paying members on the mainland and in international markets helped revenue rise 38.8 per cent to 3 billion yuan from 2.16 billion yuan, in line with most analysts' estimates.
'Given the weak economic environment, we expect Alibaba.com will increase its revenue at a more modest 13 per cent to 3.4 billion yuan this year,' wrote Deutsche Bank analysts in a research note.
Alibaba.com chief executive David Wei Zhe said the global economic crisis provided 'a great opportunity to help more small and medium-sized enterprises move online, expand our market leadership and invest for growth'.
That investment strategy included spending on a global marketing drive worth up to US$30 million, continued expansion in the United States, hiring between 2,000 to 3,000 employees, launching more products, and building a new data centre in northern China.
Mr Wei said the US, despite being hard hit by the economic downturn, remained one of the world's biggest consumer markets. That is why more functions would be added to Alibaba.com's operations in the country, including product development and sales.
Backed by eight of the country's largest banks, Alibaba.com also aims to help small and medium-sized companies affected by the slowdown to secure more than 6 billion yuan in financing this year under its expanded loan-assistance scheme.
The programme, which last year helped 600 members in Zhejiang province obtain about 1 billion yuan in loans, will be extended to Guangdong, Jiangsu and Shandong provinces, and in Shanghai. Alibaba.com helps the lenders establish a credit score for a company based on its e-commerce track record and online trust rating.
Mr Wei said Alibaba.com's investment strategy would result in lower profit margins this year, and analysts agreed.
In an earnings review, analysts at Goldman Sachs wrote: 'A tendency to cut prices on all products while remaining heavily labour-intensive (7,992 staff for US$440 million annual revenue) means Alibaba.com's margins will remain depressed in future, even if economic activity rebounds.'
Morgan Stanley analysts noted that Alibaba.com's fourth-quarter operating margin shrank 22 per cent year on year due to higher sales commission and marketing expenses.