Alibaba Group Holding, Ltd. ’s meteoric rise has been rocked by the Chinese economic slowdown, and the e-commerce firm has finally surrendered the title of Asia’s largest Internet company to Tencent Holdings, Ltd.
Shares of Alibaba ended Tuesday New York trading at $61. That was below Tencent’s value for the first time since Alibaba’s record-breaking IPO in September 2014. Shares closed on Wednesday up over 5% at $64.07.
Alibaba Group Holding Ltd is over-reliant on China. The country accounts for 83 percent of its revenue. This meant that as soon as the domestic economy started slowing, the firm’s earnings took a hit. Contrast that with Tencent, which is defying the downturn in Chinese stocks by rising 19 percent year-to-date in Hong Kong trade.
The Chinese government might have also lended Tencent shares a helping hand. It slashed rates for the fifth time since last November. The government also aggressively intervened in equity markets to arrest the stock market slide. That helped pop up shares in Hong Kong.
Tencent on a Roll
Tencent reported record quarterly earnings in August. Alibaba has missed analysts’ sales forecasts in two of the last four quarters. Its revenue also grew at its slowest pace in close to three years.
Tencent’s hugely popular messaging services WeChat and QQ already have more than 1 billion users. Revenue from advertising almost doubled to 4.1 billion yuan in the most recent quarter; buoyed by higher costing video ads linked to NBA basketball games.
Tencent sees more than half of its revenue come from online games, and in April, pumped in $126 million in San Francisco-based Glu Mobile Inc.
More Bad News from Alibaba
Alibaba Group Holding Ltd said it expects the value of its e-commerce transactions for the quarter ending September to be below current projections.
Alibaba now foresees gross merchandise volume to be “mid-single digits lower” than current estimates. GMV is one of the most closely watched e-commerce metrics, and is the total value of transactions through Alibaba’s platforms.
Analysts and investors have been looking for clues on how the Chinese slowdown affects Alibaba’s e-commerce business. Bulls were hopeful that the online retailer would be far more resilient than old-economy stalwarts such as steel and autos.
Signs of a slowdown were evident. Speaking at a tech conference in New York, Alibaba’s head of investor relations, Jane Penner said the firm is “observing some negative impact to the magnitude of the spending” by consumers on their online portals. She also said, “This will have an impact on the September quarter.”
Besides the impact of a faltering economy, Alibaba Group Holding Ltd faces other obstacles that have weighed on its stock price. These include lawsuits in the U.S. and criticism from the Chinese government regarding its business practices.
Alibaba listed on the NYSE in the world’s biggest offering of shares. But prices fell below the $68 IPO mark for the first time on August 24. That forced CEO Daniel Zhang to prod employees to not focus on the share price but rather on the firm’s longer term prospects.