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 Coming off Alibaba's record-breaking $25 billion IPO in September,
the company's shares have remained 45 percent above their debut
price. Just about every brokerage has rated the e-commerce giant a
buy, taking comfort in the group's dominant position in a $450
billion Chinese market.
Investors have been all too eager to overlook a structure that
critics say allows its management extraordinary decision-making
power, potentially to the detriment of shareholders. They have also
mostly withheld judgment on how advertising spending and sales
commission fees, where Alibaba makes the lion's share of its money,
are being affected in a slowing Chinese economy.
Instead, their focus is on Alibaba's profit margins, among the
fattest in the global e-commerce industry and far outstripping those
of loss-making Amazon <AMZN.O>. Reflecting the positive sentiment,
the firm's forward price-to-earnings ratio is pegged at more than
45.
"The stock is now trading at a pretty high multiple, and in order to
justify that, they need to show really strong results out of the
gate," said Wedbush Securities' Gil Luria.
While major shareholder Yahoo Inc <YHOO.O> has included basic
figures such as Alibaba's revenue and earnings per share every
quarter, Tuesday marks the Chinese company's first full-fledged
results release.
Net profit is expected at $1.17 billion in the quarter ended
September, according to a Thomson Reuters SmartEstimate poll of 21
analysts. Fully reported earnings per share are forecast to be at 36
cents, based on a poll of 25 analysts.
Wall Street will keep its eye peeled for any sign that runaway
growth is waning.
While Alibaba can depend on its still-growing home market for years
to come, expanding internationally will be difficult given its
marginal presence in foreign markets, which now yield just about 9
percent of overall sales, analysts say.
At home, JD.com Inc <JD.O> is chipping away at its market share,
using an Amazon-like model where it builds its own warehouses and
handles logistics. Alibaba's marketplace model, relinquishing
control over logistics, may hurt it in the long run by putting
product quality at risk.
"JD.com's efforts to compete with Alibaba through a vertically
integrated approach remind us a bit of the eBay-Amazon battle,"
RBC's Mark Mahaney wrote in an Oct. 29 note.
There are "disadvantages in terms of limited control over customer
service and fulfillment, logistics, and delivery", he said.
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EXPANDING THE EMPIRE
Alibaba, which operates China's largest Internet shopping
destination Taobao and retail site Tmall.com, is nearly unknown to
most Americans but is ubiquitous in China.
The Chinese e-commerce company, founded by former schoolteacher Jack
Ma in his apartment in 1999, has designs of expanding beyond its
commerce roots.
The company has spent significant sums acquiring firms and startups
in some of the fastest-growing mobile markets, delving into services
such as messaging and digital content. It has even made select
acquisitions in the United States, amid persistent speculation that
Alibaba is preparing some sort of move against Amazon.
It is also making moves to more closely resemble its U.S. peer,
including establishing a cloud service that provides storage and
computing (Aliyun), and a budding online video service.
Alibaba's dominance of Chinese commerce has piqued interest in
America. Apple Inc <AAPL.O> CEO Tim Cook has said he would be happy
to work with Ma. The Alibaba CEO called on Hollywood studios all of
last week, after headlining a major technology conference in Laguna
Beach.
Ultimately, what investors want to see is topline growth. Alibaba is
expected to post revenue of about $2.7 billion in the September
quarter, up about 52 percent from a previously reported $1.78
billion a year earlier. It is expected to have profit margins of
more than 40 percent during the period.
"There's going to be scrutiny of every number," Wedbush Securities'
Luria said.
(Reporting by Alexei Oreskovic in SAN FRANCISCO and Paul Carsten in
BEIJING; Editing by Ryan Woo)
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