Politics, mobile overshadow Alibaba's fairy-tale run

Thu Jan 29, 2015 3:39pm EST
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By Edwin Chan

SAN FRANCISCO (Reuters) - Alibaba Group Holding Ltd's underwhelming holiday quarter performance and an escalating war of words with a powerful Chinese industry regulator highlight two major risks to its seemingly fairy-tale ascent: politics and the shift to mobile commerce.

The Chinese e-commerce giant has acquired a rosy aura since its record-breaking IPO last spring, revealing growth rates and volumes that dwarfed industry stalwarts Amazon.com Inc and eBay Inc.

Now, Wall Street is cutting back on expectations in part because of fears that Chinese regulators are sharpening their scrutiny of counterfeit products on e-commerce sites, an endemic problem that Alibaba and others have fought for years.

"As the China-factor gets tempered, then excitement (around Alibaba) is going to get tempered as well," Cantor Fitzgerald's Youssef Squali said, after cutting estimates for 2015 revenue and earnings. "At some point, you're not going to dominate the market and you're just going to grow in line with the market. But we're not there yet," he added.

The gradual migration of users to mobile platforms threatens to weigh on the top line. On Thursday, Alibaba disappointed with 40 percent revenue growth and a monetization rate, the percentage of ecommerce transactions it earns, below Wall Street expectations. That was due to the rising proportion of purchases on mobile devices, from which Alibaba earns less. Its stock fell 9 percent.

Alibaba-watchers were also treated to the unusual sight of a company, regarded as a standard-bearer for a burgeoning technology industry, trading barbs with a government body. China's State Administration for Industry and Commerce (SAIC) surprised investors by publishing a scathing report - since pulled from its website - lambasting the company for not doing enough to suppress counterfeits.

Throw in questions around how much the world's largest economy will decelerate, and the Alibaba picture begins to look less than certain for 2015.

"Alibaba does outline anti-counterfeit measures in its filings, but the SAIC report puts the effectiveness of these measures into question," Stifel analysts Scott Devitt and George Askew wrote on Thursday as the brokerage downgraded Alibaba to a hold from a buy. "The perception issue may persist."   Continued...

The logo of the Alibaba Group is seen inside the company's headquarters in Hangzhou, Zhejiang province November 11, 2014. REUTERS/Aly Song