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‘Bottomed Out’ Alibaba Set for Best Month After Post-IPO Crash
Corporate Digest | 27 October 2015
  • Analysts raised sales projections in the past four weeks
  • China’s leaders are gathering to develop next five-year plan

Alibaba Group Holding (Alibaba) looks like it may be bottoming out after suffering the worst post-IPO crash ever.

Shares are heading for their best month ever, and analysts have raised their sales projections in the past four weeks.

Results due Tuesday are expected to show revenue growth of 27 percent in the September quarter, while in the background China’s leaders draft plans for stimulating the economy during the next five years.

Chairman Jack Ma pulled off a record initial public offering as investors backed his bet on e-commerce and Alibaba catapulted to the top of the market in China.

Then the domestic economy slowed to its weakest growth in 25 years, prompting the billionaire to calm investor fears that at one point erased $150 billion from its market value — the equivalent of an International Business Machines Corp.

“Chairman Ma has communicated more than he has in the past, and made a point of the fact that he believed there was too much concern around growth in China,” Gil Luria, an analyst with Wedbush Securities Inc. in San Francisco, said in an e-mail. “That has greatly helped with the sentiment around Alibaba shares over the last few weeks.”

Raising Estimates

The stock fell to a record low of US$57.20 on Sept. 29, or 16 percent below its IPO price. Since then it has surged 33 percent, closing Monday at US$76.35, up 1 percent for the day.

That has come as at least four analysts covering Alibaba raised estimates. Sales in the September quarter are expected to be 21.4 billion yuan (US$3.4 billion), with adjusted earnings-per-share of 3.44 yuan, according to estimates.

New cloud-based services for merchants to reach consumers and an expansion of entertainment and local-services businesses are central tenets of Ma’s growth strategy.

Increased promotions on Tmall.com and Taobao Marketplace are driving e-commerce ahead of next month’s Singles’ Day, the country’s biggest shopping event.

The company also offered US$4.6 billion for the rest of Youku Tudou Inc., a YouTube-like website, to add content it can stream to Internet users and to bolster revenue beyond e-commerce.

Alibaba is expanding its London office to serve as its European hub and opening up in France and Germany.

‘Worst Over’

Ma joined Chinese Premier Xi Jinping’s trip to Europe earlier this month and has been talking up the company’s focus on data technology and overseas expansion.

“A lot of investors think that Alibaba has bottomed out and that the worst is over,” said Li Muzhi, a Hong Kong-based analyst at Arete Research Services LLP. “There are several catalysts that could boost growth, including its improved ability to monetize advertisements and expectations the government will issue policies to revive the economy.”

While some of those factors have abated, the company may not be out of the woods. China’s leaders are gathering in Beijing to confront an economy growing at less than 7 percent, days after delivering the sixth interest-rate cut in a year.

The slide in Alibaba’s shares earlier this year came amid a sequence of bad news. The company was slammed by trade groups and a government official over how it handles fakes, data out of China showed an economy slowing, Chinese equity markets tanked and the country devalued its currency.

“I do think that the market overreacted following China’s yuan devaluation and equity market volatility,” R.J. Hottovy, an analyst at Morningstar Inc., said in an e-mail. “But I do think trends could be choppy over the next few quarters.”


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