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Chinese web tat bazaar takes profit hit, 'invests in quality'

Alibaba admits 25% profit droop in Q1 results

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Chinese e-commerce biz Alibaba (1688.HK) has taken a hammering in the last three months as profits fell 25 per cent compared to the same period last year.

A chill in the Chinese economy, combined with investment aimed taking the tat-flogging site more "upmarket" have brought profits down, said Alibaba execs in their pre-results statement for Q1 2012 (PDF).

Alibaba.com provides online services including hosting but is best known for its retail sites – Alibaba.com, a trade platform for importers and exporters, and two Chinese-language wholesale sites – aliexpress.com and 1688.com.

Year on year Alibaba's total revenue for the quarter was up 3.7 per cent compared to the same time in 2011, clocking in at ¥1.589bn (£156.6m).

But net profit for the period was down 25 per cent: the company pulled in ¥38.3m RMB (£33.3m) in profit compared to ¥451.3m (£44.5m) in the equivalent three months in 2011.

Taking e-tat upmarket

In the managers' analysis of the results, Alibaba top brass claimed that they'd been pumping serious investment into improving the quality of its marketplaces and buyer experience and that the swelling spend on "product development" in the past three months had hidden the profits they actually made. Product development spend was up 26 per cent from last year to ¥233m (£23m).

Alibaba execs also admitted they'd felt the impact of the challenging global economic environment and concerns about slow economic growth in China.

Alibaba is currently 40 per cent owned by struggling US web giant Yahoo!, but announced in February that they were taking the company private, which will likely involve a buy-back of Yahoo! holdings.

Separate reports from Reuters suggest that a chill has taken hold of the Chinese small business scene: with political uncertainty affecting investment in small e-business and start-ups – Alibaba's main customers.

Earnings per share were down 20.8 per cent compared to last year, at 8.4 cents in HK$ compared to 10.6 cents in HK$ in 2011. Alibaba's preliminary statement on its 2012 Q1 results can be found here [PDF]. ®

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