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Business

A year after its IPO, Alibaba's luck may be running out

Alibaba founder Jack Ma Yun

HONG KONG -- The headwinds facing Alibaba Group Holding, China's largest e-commerce company, are getting stronger -- and the slowdown in its home market is not the only reason.

     Alibaba made its debut on the New York Stock Exchange on Sept. 19 last year, raising more than $25 billion in the world's largest initial public offering. It opened at $92.70, well above its IPO price of $68, and hit $120 two months later.

Losing luster

It's a gloomier story these days. Shares in Alibaba ended Thursday at $65.96. In late August, they briefly sank to $58.

     At one point, Alibaba surpassed Wal-Mart Stores to become No. 1 in the global retail industry by total market valuation. Now, however, Alibaba's market capitalization is $43.2 billion lower than Wal-Mart's, according to U.S. research company FactSet Research Systems. Alibaba also trails U.S. rival Amazon.com and Chinese online services conglomerate Tencent Holdings.

     Why the change of fortunes? In early September, The Wall Street Journal reported that Alibaba lowered its projection for total sales on its online shopping sites for the July-September quarter by "mid-single-digits." Alibaba's previously projected figure remains undisclosed, but the company clearly foresees a dip in consumer spending. The three months through September were turbulent times for the Chinese economy, which saw a stock market crash and currency devaluation, and major economic gauges have confirmed the country's slowdown.

Pointed criticism

Unflattering media coverage is not helping, either.

     On Sept. 12, Barron's published an article titled "Alibaba: Why It Could Fall 50% Further." According to the U.S. financial magazine, "Alibaba's shares could fall much further as China's economy struggles, competition in e-commerce increases, and the company's culture and governance draw scrutiny."

     The article also said Alibaba's projected price-earnings ratio of about 25 is too far above the 15 or so for U.S. competitor eBay.

     Market players were particularly interested in questions raised over figures put out by the company. Average per-user spending on Alibaba's online malls is reportedly almost 75% of what the average U.S. online shopper spends on all sites. This, the article pointed out, is despite the fact that per capita gross domestic product is seven times higher in the U.S. than in China.

     Alibaba was quick to strike back. In a letter to Barron's Editor and President Edwin Finn, dated Sept. 14, the company said its P/E ratio should be compared to those of other Chinese Internet companies, such as Tencent, whose P/E ratio stands at 31, rather than eBay, which does not operate in China. Alibaba also said the numbers provided by the writer regarding average per-user spending were wrong and argued that several comparisons in the article were based on flawed assumptions. Barron's, in turn, responded that it stands by its Sept. 12 story.

     There are concerns Alibaba could come under even more selling pressure as the one-year IPO lockup period for its major shareholders -- Japanese telecommunications giant SoftBank Group and Yahoo of the U.S. -- approaches its end. Alibaba's lockup period differs depending on the shareholder and has already expired for some.

     But Ma Yuan, an analyst at Hong Kong-based Bocom International, said the long-term outlook for Alibaba is bright, given that disposable income in China is on the rise. Many market players share this view, despite the pressure currently facing the company.

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