Hong Kong - Alibaba Group Holding will buy back as much as $4 billion of stock as it tries to revive a share price battered by concerns about the slowing Chinese economy less than a year after going public.
The e-commerce operator will buy the shares over a two-year period, mainly to offset dilutions such as from its compensation programs. Wednesday’s announcement came as the company posted first-quarter sales that rose at the slowest pace in at least three years and posted transaction volumes that missed estimates. Shares fell more than 6 percent in pre-market trading.
Alibaba’s plunge in market value of about $100 billion, a decline bigger than Goldman Sachs Group, since November has been driven by a Chinese economy expanding at the weakest rate since 1990 and lawsuits concerning sales of counterfeit goods. The company’s revenue in the three months ended June rose 28 percent to 20.2 billion yuan ($3.2 billion), down from an average of 56 percent in the previous 12 quarters.
“Online shopping in larger cities in China has already reached saturation,” Li Muzhi, a Hong Kong-based analyst at Arete Research Service, said by phone before the earnings. “Alibaba needs to invest in new areas to search for other avenues of growth.”
Alibaba fell to $73 in pre-market trading. While the shares have never traded below the $68 paid in September’s initial public offering that raised a record $25 billion, they have fallen 35 percent from November’s record close of $119.15.
Slowing economy
Gross merchandise volume, which measures transactions on its Chinese retail marketplaces, rose 34 percent to 673 billion yuan in the quarter, short of the 38 percent growth expected by analysts.
Alibaba is being squeezed by price cuts and competition in China’s bigger cities, a shift to shopping on smartphones that generates less advertising revenue and the country’s slowest economic growth since 1990.
That hasn’t dulled billionaire Chairman Jack Ma’s appetite for expansion. On Monday, he announced a $4.6 billion investment in Suning Commerce Group to get more access to the electronics retailer’s network amid intensifying competition from online shopping site JD.com.
“Online shopping in larger cities in China has already reached saturation,” Li Muzhi, a Hong Kong-based analyst at Arete Research Service, said by phone before the earnings. “Alibaba is also providing heavy discounts on its group-buying site to win market share.”
New president
Alibaba brought former Goldman Sachs Group Inc. partner Michael Evans as president this month to help its global push in August.
Ma is trying to diversify Alibaba’s businesses while simultaneously tapping more of the 594 million Chinese who access the Internet from their smartphones and tablets.
The strategy includes expansion into entertainment, health care, location-based services pushing its own YunOS smartphone operating system.
The company is putting its online movie ticketing business and movie crowd-funding platform into Alibaba Pictures Group. In April, Alibaba Health Information Technology agreed to absorb the e-commerce company’s online pharmacy business, giving it a boost to win a larger share of the market.
Alibaba’s overseas strategy has seen it start e-commerce sales in Russia, Brazil and India through its AliExpress service. Founded in 2010, AliExpress is the top shopping site in Russia and Brazil.
As China introduces policies that make it cheaper to import overseas goods, Alibaba is competing with JD.com to introduce more brands from the US and Europe. Thousands of American products, including Converse Inc. sneakers and Procter & Gamble toothpaste, are available to Chinese shoppers through Alibaba’s websites.
As it deals with the slowing Chinese economy, Alibaba has also been battling criticism from the government. In January, a report by the State Administration for Industry & Commerce accused Alibaba of allowing merchants to operate without required business licenses, to run unauthorised stores that co-opt famous brands and to sell fake wine and handbags.
BLOOMBERG