Alibaba Quarterly Profit Jumps 55%, but Cautious on Outlook

Alibaba Group, owner of China's largest e-commerce site, reported a 55 percent jump in third quarter profit, driven by a rise in subscribers and strong growth in value-added services. However, the firm warned of falling growth rates due to an expected slowdown in China's exports.

The office of Alibaba (China) Technology Co.
Guang Niu | Getty Images AsiaPac | Getty Images
The office of Alibaba (China) Technology Co.

Alibaba's net profit in the July-September quarter rose by a higher-than-expected 55 percent to 366 million yuan ($55 million) from 236 million the year before, on revenue of 1.45 billion yuan, a 40 percent increase.

Its Hong Kong-listed shares fell 1.4 percent on Friday. The stock has lost 19 percent of its value in 2010, compared with an 11 percent gain in the Hang Seng Index.

Alibaba has benefited from China's rapid urbanization and newfound wealth. The internet company - which started in Hangzhou, China in 1999 - now employs some 19,000 staff in 60 different cities across China, India, Japan, Korea, the United Kingdom and the United States.

Alibaba creates a global cyber marketplace, where businesses can buy or sell, import and export any number of products, such as frozen potatoes, juke boxes, surgical instruments, human hair extensions, or even snowmobiles.

However, the firm flagged slower growth of subscribers in recent months and sounded a cautious tone about export growth in the country.

"China's export growth in the coming quarters may continue to moderate, growing at a slower rate than we saw in previous quarters," the firm said in a statement.

That potential slowdown, combined with new higher service fees, could lead to a decline in subscribers, analysts warned.

Retail Reach

The group said it aims to expand its business through further cooperation with, China's online shopping community operator.

In 2003, Alibaba launched Tabao Mall, now a major rival to eBay , to reach the Chinese mainland retail market so businesses can sell directly to consumers.

More and more overseas firms are now using the website to tap into China's $1.7 trillion dollar consumer market. Just a few months ago, Adidas joined Uniqlo, Dell , Kohler and Samsung to open its first official online store in China, through Taobao Mall.

"This special initiative addresses our Chinese consumers' changing lifestyle needs and we will now be able to provide them with an official online shopping channel to purchase authentic and even exclusive products at their own convenience," said Christophe Bezu, managing director of Adidas Group in China.

Alibaba's Expansion Plans

Expansion Plans

In a conference call held after the release of its results, the firm's CEO David Wei said is expected to announce further acquisitions in China in the coming weeks to build up its business platform, Reuters reported.

Alibaba Group now has its sights set on grocery store checkouts that are free of queues, with plans for its retail offshoot to open up an online supermarket. Taobao has already reached out to many of the big name players, such as Proctor & Gamble , Coca-Cola and Pepsi to get on board.

And it's likely they won't need much convincing. Taobao is China's largest online retail site, with more than 500 million product listings and more than 210 million registered users. To put that into perspective, the entire U.S. population is about 310 million. Taobao says it gets more than 50 million unique visitors daily, and is one of the world's top 20 most visited websites.

The online retailer is expecting China's e-commerce market to get even hotter, forecasting that it will double the value of transactions done on its website to 400 billion yuan ($59.9 billion) this year.

But other companies are also making a play for the booming online market, including Beijing Jingdong CenturyTrading's and Amazon's Chinese website. Still, both are a lot smaller than Taobao in terms of transaction value.

Yahoo Stake in Question

Alibaba was in the headlines earlier this week, following reports the company's founder Jack Ma has been approached by a group of private equity investors, to gauge his interest in joining a bid to buy back Yahoo's 40 percent stake in the company. Alibaba's spokesman John Spelich declined to comment on the rumors.

On Friday, the head of Japan's Softbank Masayoshi Son said he has no interest in taking a majority stake in the company. Softbank owns a third of Alibaba, making it the second-biggest shareholder .

- Reuters contributed to this report