A cleaner waters the flowers below a logo of Alibaba (China) Technology Co. Ltd at the company's headquarters on the outskirts of Hangzhou, Zhejiang province Nov. 21, 2013.Chance Chan/Reuters
Will Alibaba's strong sales growth in the first three months of the year and a new chief executive officer be enough to turn around an exodus of investors from the stock?
While money managers initially embraced Alibaba Group Holding Ltd. as an alternate investment to Amazon.com Inc., many have had second thoughts since the Chinese e-commerce company went public in September, sending Alibaba's market value tumbling by about $80-billion (U.S.) before Thursday's earnings report.
Meanwhile, Amazon has been able to lure back investors, thanks to better profitability and new numbers showing the growth of its cloud-computing division, helping to boost its market capitalization by about $60-billion since the beginning of the year.
T. Rowe Price Associates, BlackRock Advisors and Morgan Stanley Capital Services are among the fund managers that pulled money away from Alibaba while betting more of their cash on Amazon, helping to narrow the gap between the two e-commerce giants:
"Investors are flip-flopping about what's working," said Michael Tudor, president of Ripen eCommerce, an online retail consulting firm in Princeton, New Jersey. "Everybody wanted to flock to Alibaba because it was focused on e-commerce and profitable. Now we're seeing that Amazon can launch a technology product that is very successful and profitable, which swings investors back in the other direction."
Alibaba's market value of $211-billion exceeds Amazon's by about six per cent, compared with a gap of about 80 per cent after Alibaba's September initial public offering. The shift reflects some uncertainty among investors on how to bet on the global trend of people shopping online. Global e-commerce is on track to jump 21 per cent this year, to reach sales of $1.6-trillion, according to EMarketer.
Last year, Amazon spooked investors with quarterly losses and a new smartphone that didn't sell, prompting concerns that CEO Jeff Bezos was pumping too much money into pet projects. Alibaba was appealing, since it provided a way to invest in an e-commerce market growing at twice the pace as that in the U.S.
More recently, Alibaba had investors concerned, with slowing revenue growth, a hiring freeze and government scrutiny regarding counterfeit goods sold on its marketplaces. The company blunted those concerns Thursday when it reported a 45-per-cent increase in first-quarter revenue.
Broad swings in value are common in emerging industries such as e-commerce due to uncertainty about who will gain market dominance, according to Kirthi Kalyanam, director of the Retail Management Institute at Santa Clara University.
Zulily Inc. and Wayfair Inc. are other examples of online retailers that initially attracted investors with brisk growth rates, only to fall out favor later, Kalyanam said. And e- commerce pioneer EBay Inc. has shown the limits of growth for online marketplaces when competition emerges, he said.
"As e-commerce grows in China, you should expect competition to grow, too," Mr. Kalyanam said. "There's a lot of uncertainty."