China is seeing a boom in the e-commerce segment. According to Forrester Research, business to consumer sales in China are expected to triple to $159 billion in 2015 from $49 billion in 2010. Yet, within retail sales, e-commerce sales will account for a mere 5% share in the next three to five years. While that may be a small contribution, it is still a significant leap from the 2.5% share it accounts for currently. BCG expects China to be the world’s largest e-commerce market in 2015.
Alibaba’s (HKSE:1688.HK) Q3 revenues grew 11% over the year to 1.6 billion yuan (~$251 million). However, from an earnings growth perspective, this was the slowest quarter for the company in two years. Earnings grew 12% over the year to 409.7 million yuan (~$63 million), below the market’s projected 432.23 million yuan (~$67.91 million).
By segment, revenue from international marketplace grew 11.8% to 947.5 million (~$148.89 million). Revenue from their China Gold Supplier membership package grew 11.5% over the year to 918.6 million yuan (~$144.33 million) and accounted for 57% of their overall revenue. The Gold Supplier program is a premium category membership for suppliers. It had taken a hit in the first half of 2011 because of fraud that led to the resignations of the CEO and COO in February 2011.
The number of paying members to their sites increased 5% over the year to more than 787,650. Subscribers of the China Gold Supplier and Global Gold Supplier packages fell 1% and 25%, respectively. According to management, the slow pace of growth in the customer base was because of the fee increase and stricter quality measures Alibaba had put in place following the fraud charges levied on them in 2011.
Alibaba is reorganizing their investments in multiple businesses. Recently, they announced plans to invest $282 million in Taobao Mall. Of late, several small business owners at Taobao Mall have protested the fee increase and the availability of feedback on the site. Alibaba aims to improve the quality of service providers at Taobao through this additional investment.
Alibaba is also said to be evaluating a spin-off of their Internet application services provider, HiChina. HiChina provides organizations with Internet services such as domain registration, hosting, enterprise e-mail systems, enterprise website creation and management, and consultation in e-commerce applications. Alibaba is rumored to be working on plans to list HiChina on the U.S. stock exchanges to raise $200 million-$300 million.
More important, analysts believe that Alibaba may be interested in buying a piece of Yahoo. CEO Jack Ma is working on plans to expand Alibaba’s presence in the U.S. in the next few years, and the acquisition of Yahoo would help them to jump into this market.
To help with the deal, Alibaba is seeking debt financing of $4 billion. They hope to buy back the 40% stake that Yahoo owns in Alibaba through this funding. In addition, they are said to be partnering with Blackstone Group and Bain Capital in their joint bid to buy Yahoo.
Alibaba’s Expanding Offerings
Alibaba is also expanding within the social networking space and recently beta-tested their new social-networking product, Laiwang. The product will be available on computers and mobile devices based on the iOS and Android platforms.
Recently, Alibaba also opened up their group buying platform, Juhuasuan.com, to other players such as Groupon and China’s leading group buying site, Meituan. Alibaba expects that the open platform help these buying sites offer deals to Juhuasuan’s active users and help smaller deal providers to reach this massive viewership.
Alibaba’s stock is trading at HK$8.05 (~$1.04), taking its market capitalization to HK$40.20 billion (~$5.17 billion). It touched a 52-week high of HK$17.70 (~$2.28) in February 2011.
Baidu’s (NASDAQ:BIDU) Q3 revenue grew 85% over the year to RMB4.175 billion (~$654.7 million) driven by similar growth in online marketing revenue, which were RMB4.174 billion (~$654.4 million) for the quarter. Baidu’s active online marketing customers grew 12% over the year and 2% over the quarter to nearly 304,000. Revenue per online marketing customer increased 65% over the year to RMB13,700 (~$2,148). EPS for the quarter came in at $0.86. The market was looking for revenue of $618.6 million with EPS of $0.83.
For the current quarter, Baidu expects to earn revenue of RMB4.410 billion-RMB4.535 billion ($691.4 million-$711.0 million). The market was looking for revenue of $647 million for the current quarter.
Baidu’s Mobile Expansion
Although Baidu may be a leader in the online search space in China, mobile OS remains a different story. Android accounts for over 40% market share in China and is the leading mobile OS in the country. However, Baidu is fighting them and recently launched their own mobile OS, Yi. As part of their partnership with Dell, Yi was released in the market as the OS for Dell’s first smartphone. Yi, which is a revamped version of Android, is capable of running all Android apps. But Yi is expected to win in China because Baidu is expected to be able to leverage their popularity with the Chinese user base, which they say would benefit from their Chinese-language search results and serve as a better platform for China-based app and content developers.
The stock was trading at $116.47 with a market capitalization of $40.7 billion. It touched a 52-week high of $165.96 in July 2011.