Shares of Chinese e-commerce giant Alibaba Group Holding Limited (NYSE:BABA) tumbled 10.17 percent, to $88.44, in morning trading Thursday after the company’s quarterly sales missed Wall Street expectations, raising concerns that the company is showing signs of a slowdown in growth. The pullback in revenue growth also evoked fears that a slowdown in China’s economy is beginning to impact earnings for corporations that do most of their sales in China.
The question analysts are asking themselves is how a slowing Chinese economy will impact Alibaba’s results. Many analysts consider Alibaba to be a barometer for the Chinese economy. Recent data show that China’s economy is growing at its slowest pace since 1990, a worrisome sign of a global slowdown that could affect the U.S. economy.
“If you want to know when China’s economy is going to hit its crash zone, watch Alibaba’s revenue and earnings,” Martha Stokes, chartered market technician and chief executive officer of TechniTrader, told International Business Times in November. “Alibaba will be like what GM was to America. Once BABA’s revenue begins to tick down a little bit, that’s a huge red flag.”
The report comes one week after China, the world’s second-largest economy, grew at its slowest pace in 24 years. It was also the first time since 1999 that China had missed an annual growth target for gross domestic product. The country had set a growth target of 7.5 percent GDP in 2014 amid economic challenges, but the country fell just short of expectations and expanded at 7.4 percent for the full year. The country’s economy grew at its slowest pace in five years in the fourth quarter.
This is the second public earnings report from Alibaba after Jack Ma, the company's founder and executive chairman, led the e-commerce giant to its record-breaking $25 billion initial public offering in September.
For the fiscal third quarter, Alibaba reported that net income fell 28 percent, to $964 million, for earnings of 37 cents per share, compared with the same period a year earlier, primarily due to an increase in share-based compensation expenses.
Revenue rose 40 percent, to $4.22 billion, missing analysts’ expectations, as Wall Street had expected the company to report revenue of $4.45 billion, according to a Thomson Reuters poll. Revenue from the company’s China commerce retail business last quarter was $3.43 million, or 82 percent of total revenue, mainly driven by the growth in commission revenue and online marketing services revenue.
The company was able to boost revenue from the previous quarter from its mobile platforms. The company added 48 million active users during the quarter, a 95 percent increase from 136 million a year earlier, totaling 265 million mobile monthly active users, helping the company deliver over $1 billion in mobile revenue during the quarter.
"The numbers to me are a little concerning because the growth isn’t as spectacular as they’re making it out to be,” Stokes said.
During an earnings call with shareholders, Alibaba Executive Vice Chairman Joe Tsai said a report from a Chinese regulator criticizing the company for allegedly permitting the sales of fake goods on e-commerce platforms Taobao and Tmall is "deeply flawed."
“We believe this report was flawed and was based on arbitrary methodology," Tsai said during the call with investors Thursday.
Following the company’s initial public offering price of $68 in September, shares of Alibaba have climbed more than 45 percent at Wednesday’s closing price of $98.45.
The report comes after Internet giant Yahoo Inc. announced Tuesday it plans to spin off its remaining $40 billion stake in Alibaba. Shares of Yahoo (NASDAQ:YHOO) fell 6.51 percent, to $43.44, following Alibaba’s earnings report.