Alibaba raises profits, Jingdong raises money

Jingdong Mall's new fund raising and Alibaba's strong Q2 results show that investors remain interested in China's e-commerce sector, which shows no signs of easing competition.

PUBLISHED : Tuesday, 13 November, 2012, 2:48pm
UPDATED : Tuesday, 13 November, 2012, 2:48pm

New reports from the e-commerce space show that Alibaba continues to dominate the sector with its popular TMall, even as leading rival Jingdong Mall shows no signs of easing its challenge as it has raised US$400 million in new funds. Before I go any further in this discussion, I should add a disclaimer saying that both of these companies are private and not required to disclose any information publicly. As such, both have become masters at strategically giving or leaking information to the media that plays to their greatest advantage. That said, there's usually at least some truth to the information they release, which is what makes it worth looking at.

Now that I've finished my long disclaimer, let's start with a look at the news from Jingdong Mall, also known as 360Buy, which has reportedly raised US$400 million in new funds. (Chinese article) The new fund raising includes the Ontario Teachers' Pension Plan among its investors, and the transaction values Jingdong at US$7.25 billion, according to a Chinese media report citing an unnamed source.

This news looks credible for a number of reasons, including the fact that Jingdong has reportedly been seeking new funds since aborting a potential IPO early this year due to weak investor sentiment. The company raised a record US$1billion-plus early last year, but has burned through much of that money since then amid a rapid build-up of its business and a series of non-stop price wars with rivals like Alibaba and Dangdang (NYSE: DANG) that have pushed most companies deeply into the red.

What also makes this report credible is the US$7.25 billion valuation, which is sharply lower than the figures of US$10 billion or more that have been leaked into the market over the last year. Even the US$7.25 billion figure may be a bit high, but at least it's more in line with reports of what investment banks were estimating when Jingdong was looking to make its IPO earlier this year.

The fact that Jingdong was able to maintain its relatively high valuation and that it could raise so much money in this relatively difficult climate is probably a good sign for the company; but again, I suspect this news is being strategically leaked to Jingdong's advantage, and there is probably some bad news that we're not hearing about.

Meantime, the news also looks quite positive from Alibaba, whose group profit reportedly doubled to US$270 million in this year's second quarter as revenue jumped 70 per cent to just over US$1 billion. The numbers in this media report are quite detailed, which also gives them stronger credibility even though Alibaba is privately held and not required to publicly disclose such information. I don't have any comparisons from previous quarters, but I do suspect these latest growth rates are probably slower than last year as Alibaba's business reaches such a big size. Still, the numbers do look impressive on the surface -- especially when one considers that most other major e-commerce players are losing money.

In separate reports, Alibaba is also reporting that sales on its TMall platform reached a hefty 19.1 billion yuan(HK$23.6 billion), or about US$3 billion, on Sunday, a day known as "Singles Day" that is fast becoming a major retail event in China. Word has been circulating for weeks now that Alibaba and other major e-commerce sites were preparing major promotions for the date, but the US$3 billion figure still does look quite impressive. At the end of the day, all of this shows that China's e-commerce market is still growing quickly and is quite attractive to investors. But that said, cutthroat competition is likely to remain the norm for the next year or two until investors finally tire of losing money.

Bottom line: Jingdong Mall's new fund raising and Alibaba's strong Q2 results show that investors remain interested in China's e-commerce sector, which shows no signs of easing competition.