Alibaba Group Holding Ltd., China’s largest e-commerce company, tripled first-quarter profit on surging sales as it prepares for a possible initial public offering.
Net income rose to $669 million in the three months ended March from $220 million a year earlier, Yahoo! Inc. (YHOO:US), which owns a stake in the Hangzhou, China-based company, said in a presentation yesterday after reporting earnings.
Alibaba, with services connecting businesses to each other and consumers, has expanded lending, secured financing and made acquisitions since billionaire founder Jack Ma last year said the company may go public within five years. The valuation could reach $62.5 billion, according to the median of eight estimates by investment banks and research firms compiled by Bloomberg since February, while Chief Executive Officer Jonathan Lu told China Daily newspaper the proceeds may fund deals.
“Their earnings were driven by the online payment system and China’s booming commerce,” said Billy Leung, an analyst at RHB Research Institute Sdn in Hong Kong. “I am still more bullish on the Chinese e-commerce market. It’s still in the early stage and will become more mature and Alibaba will continue to benefit from the growth.”
Alibaba, formed in 1999 as an online marketplace for Chinese companies, has grown as the wave of economic liberalization spurred a boom in manufacturing and trade. It expanded its workforce to more than 24,000 and added services including cloud computing, online payments and consumer auctions.
A valuation of $62.5 billion compares to the $104 billion Facebook Inc. (FB:US) pricetag prior to its listing.
“Alibaba is a really trusted brand and that’s more important in China because there are so many cowboys,” said Mark Tanner, founder of China Skinny, a Shanghai-based research and marketing agency. “Alibaba is still in the early days, the curve is going to be a lot more vertical than a Facebook.”
Alibaba spokesman John Spelich declined to comment in an e-mail on the Yahoo disclosure. The company has no timetable for an IPO, hasn’t hired bankers and hasn’t selected a location for a prospective public offering, he said.
First-quarter sales at Alibaba rose 71 percent to $1.4 billion, according to the Yahoo filing. The Sunnyvale, California-based company yesterday reported earnings for the quarter ended June and recognizes the contribution of Alibaba one quarter in arrears.
In 2005, Yahoo agreed to pay $1 billion in cash for a 40 percent stake in Alibaba, which also took control of Yahoo’s China operations. Yahoo owns about 24 percent stake of Alibaba, a stake it values at $8.1 billion, according to the presentation.
Alibaba’s sales in the quarter were more than the $1.1 billion reported by Yahoo for the March period.
Proceeds from the IPO would be used along with additional cash to buy back stock held by Yahoo, a person with knowledge of the matter said in May.
Alibaba’s initial public offering may raise HK$100 billion ($12.9 billion), according to an estimate by Ernst & Young LLP last month.
The company last month closed the general syndication of its $8 billion loan, three people familiar with the matter said. In April, it agreed to pay $586 million for about 18 percent of Sina Corp.’s Weibo, China’s largest Twitter-like service.
Yahoo lost (YHOO:US) 1.7 percent to $26.88 in New York trading yesterday. The stock has advanced 35 percent this year.
Alibaba doesn’t sell merchandise itself. Instead, it runs platforms including Taobao Marketplace and Tmall.com that connect retail brands with consumers, a cross between Amazon.com Inc. and EBay Inc. (EBAY:US)
Online retailing in China more than doubled each year from 2003 to 2011 and is projected to more than triple to $395 billion from 2011 to 2015, according to a McKinsey & Co. report in March. China had 564 million Internet users at the end of 2012, 10 percent more than a year earlier, according to the government-run China Internet Network Information Center.
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