Growing pains may loom for Alibaba: Expert

Word of caution to Alibaba: Professor
Word of caution to Alibaba: Professor   

In its first earnings statement since its record IPO, Alibaba Group reported results that met analyst expectations but showed the company's costs are growing.

As it seeks to expand beyond its roots as an online marketplace, Alibaba will face further challenges to keep its profit margins attractive, technology expert Mohanbir Sawhney told CNBC's "Squawk Box."

"They have to play this game carefully. They really have to think about balancing their profits and their margins with the growth and the customer experience," said Sawhney, director of the Center for Research in Technology and Innovation at Northwestern University's Kellogg School of Management.

Alibaba's profit margins remain phenomenal because its model remains asset light, but the company lacks the control over customer experience and logistics that an asset-heavy company such as Amazon has achieved by building out infrastructure, he said.

Founded by entrepreneur Jack Ma in 1999, the e-commerce firm operates China's most popular retail platforms Tmall and Taobao. Both brought in a combined $5.7 billion in sales on China's Singles' Day celebration on Nov. 11, 2013.

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In June, Alibaba launched a similar e-commerce site in the United States called 11 Main. The tech conglomerate has continued to expand its holdings with acquisitions in mobile and cloud services, as well as seeking opportunities with Hollywood and possibly Apple.

"Growth is very seductive because there are so many opportunities before Alibaba," Sawhney said. "They've got a stock that is very valuable currency, and they've got their eyes on the global prize."

He warned that venturing into unrelated businesses, especially outside of China, will be a different ballgame.

"If I were Alibaba I would be focused like a laser beam on the core Chinese market, which really has a lot of headroom to grow," he said. "If they take their eye off that ball, there are competitors like JD.com backed by Tencent that may take away from market share."

The company reported earnings excluding items of 45 cents a share, matching estimates, on revenue of $2.74 billion. Analysts polled by Reuters had expected Alibaba to post revenue of $2.61 billion.

The company said gross merchandise volume, a measure of the total value of goods sold, rose 49 percent in the quarter from the year-earlier period. GMV in the previous two quarters grew 46 percent and 45 percent.

Annual active buyers climbed to 307 million from 279 million a year ago.

Alibaba reported 217 million monthly active users on its mobile commerce apps, including the Taobao App, up from 188 million mobile users reported in June.

The company is spending more money to attract those users. Sales and marketing expenses increased to $285 million, or 10.4 percent of revenues. That is up from about 6 percent of revenues in the year-ago period. Alibaba attributed the increase to tactical advertising and promotional spending in the China market.

General and administrative costs also increased to 11.6 percent of revenue from 7.2 percent in the same quarter of 2013.

Following the report, Alibaba's shares rose about $4 in premarket trade before turning negative shortly after 8 a.m. EDT. In afternoon trading, the stock was up about 3 percent. (For the latest stock price, click here.)

The company's second-quarter earnings report is the first after its debut on the New York Stock Exchange in September, an IPO that was the biggest of its kind at more than $25 billion.

Reuters and CNBC's Evelyn Cheng contributed to this story.