Alibaba feels China pain as it trims sales forecasts
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E-commerce giant Alibaba has succumbed to the crisis gripping the Chinese economy a year after the company became the world’s biggest float.
Founder and former English teacher Jack Ma became an overnight billionaire when Alibaba launched on the New York Stock Exchange in September 2014, as the firm raised a record-breaking $25 billion (£16.3 billion) in a float valuing the company at $186 billion.
Alibaba is the biggest player in the Chinese e-commerce market — where spending is set to hit $1 trillion by 2019 — accounting for 80% of online sales in China.
The firm is also among the top picks of UK retail investors, according to fund manager Hargreaves Lansdown.
But the company admitted today that a weakening Chinese economy has taken its toll on business, as it slashed forecasts for the total value of transactions it expects to take place in the current quarter.
This will now be “mid-single digits lower” than the giant’s initial estimates for the quarter.
Alibaba’s head of investor relations, Jane Penner, said consumers were still willing and able to spend but that the company had been seeing a “negative impact of the magnitude of the spending”. Average order values are also lower, Penner added.
The latest fears over the e-commerce giant come a month after it reported its slowest growth in transactions for more than three years.
Shares in the company are now below their $68 float price after a near-5% slump overnight to $60.91. The stock has halved since the end of May, when Alibaba’s shares hit $119 — valuing the company at a staggering $300 billion.
“The firm is also among the top picks of UK retail investors, according to fund manager Hargreaves Lansdown.”
The latest bad news out of China comes hard on the heels of a dramatic slump in imports — fuelling fears of a hard landing for the world’s second biggest economy — and a month of turmoil in global stock markets following Beijing’s sudden devaluation of the yuan.
China also cut its official growth estimates for 2015 this week. China has also cut interest rates five times since November and intervened directly to stem plunging stock markets.
Rathbones investment director Jane Sydenham said: “Investors are beginning to adjust to what was initially quite a shock in terms of the renminbi devaluation, share repurchases — normally those kind of activities on the part of central banks signal something really quite serious.
“It’s taken some time for investors to adjust to the fact that clearly, growth is slowing, perhaps more than we’d thought.”
Despite the gloom from Alibaba, shares rallied in China for the second day running on hopes of more government stimulus.
Shanghai’s main market gained 2.3% after the finance ministry set out plans to boost infrastructure spending and speed up reform of its tax system to support the economy.
Japan’s Nikkei also saw its biggest single gain in seven years — rising 7.7% — as markers rallied on comments from prime minister Shinzo Abe raising hopes of a corporate tax cut and a new trans-Pacific trade deal.
Questions & Answers
Q.What proportion of China's online sales does Alibaba currently account for?
What proportion of China's online sales does Alibaba currently account for?
Alibaba is the biggest player in the Chinese e-commerce market. It accounts for 80% of online sales in China, where spending is expected to reach $1 trillion by 2019.
Q.What specific reasons did the company give for trimming its sales forecasts?
What specific reasons did the company give for trimming its sales forecasts?
The company stated that a weakening Chinese economy has impacted business. Its head of investor relations noted a negative impact on the magnitude of spending, with average order values also lower.
Q.What measures has China taken recently to address its economic challenges?
What measures has China taken recently to address its economic challenges?
China has cut interest rates five times since November and intervened directly to stem plunging stock markets. The finance ministry also set out plans to boost infrastructure spending and speed up tax reform.