Alibabas Fourth-Quarter Profit Beats Estimates on Higher Services Sales

Source: Bloomberg News By Mark Lee

Alibaba.com Ltd., the Chinese e- commerce company seeking to recover from a fraud scandal, posted profit that beat analyst estimates as customers spent more to promote their products.

Fourth-quarter net income rose 46 percent to 410.4 million yuan ($62.4 million), or 0.08 yuan a share, from 281.2 million yuan, or 0.06 yuan, a year earlier, the Hangzhou, east China- based company said in a statement today. That compares with the 400.2 million-yuan average of five analyst estimates compiled by Bloomberg. Revenue increased 38 percent to 1.52 billion yuan.

Alibaba boosted sales of trade-advisory and marketing services to Chinese exporters offering everything from clothing to cutlery before David Wei resigned as chief executive officer last month as the company said some employees helped defraud buyers. New CEO Jonathan Lu said today that user traffic on the companys website was unaffected by the disclosure.

Buyer activity on Alibabas online marketplace set a record this month, Lu said in a conference call with analysts, without giving details.

Wei and former Chief Operating Officer Elvis Lee resigned to take responsibility for a systematic breakdown of integrity, Alibaba said Feb. 21. More than 2,300 vendors used the companys website to defraud buyers, and about 100 employees were responsible for letting sellers create bogus storefronts, Alibaba said. Wei and Lee werent accused of wrongdoing.

Underperforming Stock

Alibaba fell 4.2 percen! t to clo se at HK$13.80 in Hong Kong trading today before the earnings announcement and has declined 17 percent since Feb. 21. The stock this year has underperformed Tencent Holdings Ltd., Chinas biggest Internet company, and Baidu Inc., owner of the countrys most popular search engine.

Growth was driven by the value-added services, Muzhi Li, who rates Alibaba hold at Mizuho Securities in Hong Kong, said before the earnings. The brand and the reputation have been tarnished, and the company has to address the credibility issue.

Alibaba increased revenue from services such as keyword advertising, logistics advisory and customer training, and is less reliant on annual membership fees paid by sellers. Demand for the so-called value-added services will help improve the companys profitability, Chief Financial Officer Maggie Wu said in the conference call.

Gold Supplier Program

Alibaba added about 12,700 members for its China Gold Supplier program for exporters last quarter, compared with more than 11,000 a year earlier. In January, the company increased the one-year membership fees 50 percent to 29,800 yuan.

More than 1,200 Gold Suppliers in 2009 and 1,107 in 2010 engaged in fraud, according to the findings from an internal investigation by Alibaba, the company said last month. About 100 of the companys 5,000 sales representatives, as well as some supervisors and managers, were either intentionally or negligently allowing the vendors to evade the companys authentication and verification measures to form fraudulent storefronts for international customers.

Alibaba.com is changing its focus from the quantity of customer additions to quality, Wu said. The shift may restrain growth of paying members, she said.

Yahoo! Inc., the most-visited U.S. Web portal, is the biggest shareholder in closely held Alibaba Group Holding Ltd., the parent company ! of Hong Kong-listed Alibaba.com.

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