Alibaba to Post Profit Gain After Investing in Apps

HANGZHOU, China — Alibaba Group Holding Ltd. is set to report earnings today as investors seek clues on the performance of its mobile business and response to government allegations it isn't doing enough to combat online shopping fraud.

Net income at China’s biggest e-commerce company probably rose 6.8 percent to 8.8 billion yuan in the three months ended in December, according to the average of 19 analyst estimates compiled by Bloomberg.

Billionaire Chairman Jack Ma is investing in shopping apps to make e-commerce more accessible as Chinese increasingly rely on smartphones to go online. Investors also await results of Alibaba's spending to stimulate demand for November's "Singles' Day," and any further reaction to government accusations that merchants operating illegally on the company's system have created Alibaba's "biggest credibility crisis."

“Alibaba had to spend a lot of money to obtain traffic and promotions for Nov. 11,” said Li Yujie, an analyst at RHB Research Institute Sdn in Hong Kong.

The company reported a record 57.1 billion yuan worth of transactions on Nov. 11, China’s “Singles’ Day,” online shopping holiday.

China’s State Administration for Industry & Commerce yesterday accused Alibaba of failing to root out fraudulent merchants, counterfeit goods, bribery and misleading promotions.

“I would guess that this intervention will prompt a pretty swift response from the top within Alibaba,” said Duncan Clark, chairman of technology consulting firm BDA China Ltd. “The question is how they handle these interactions and respond to the concerns or directives of government.

Fake Goods

The administration report also said merchants are operating via Alibaba’s platform without required business licenses and selling fake wine and handbags.

‘‘Alibaba not only faces the biggest credibility crisis since its establishment, it also casts a bad influence for other Internet operators trying to operate legally,’’ the government agency said.

Alibaba responded yesterday by accusing the government of damaging its Taobao online shopping business because Liu Hongliang, the government’s Internet regulation official, mishandled his role.

‘‘We believe director Liu Hongliang’s procedural misconduct during the supervision process; irrational enforcement of the law; and obtaining a biased conclusion using the wrong methodology has inflicted irreparable and serious damage to Taobao,” Alibaba said in a statement.

Share Performance

Alibaba fell 4.4 percent to $98.45 at the close of trading in New York on Wednesday, its biggest decline since Dec. 1. The shares have gained 45 percent since Alibaba sold stock at $68 each in its September initial public offering, which raised a record $25 billion.

Alibaba said in its prospectus that there were allegations in the past, and probably would be in the future, that the company’s platforms were selling goods that were counterfeit or infringed on other copyrights including music.

Investors backed Alibaba’s IPO in a bet on the company’s ability to expand globally with shopping platforms including Taobao, Tmall.com and AliExpress just 15 years after being founded in Ma’s apartment.

Ma said this month at the World Economic Forum in Davos that he wants Alibaba to serve 2 billion customers globally and 10 million small businesses outside of China. AliExpress, the company’s market for customers outside of China, was founded in April 2010 and is already the top shopping site in Russia and Brazil, markets where it has no employees.

Finance, Entertainment

As the company expands its core business of e-commerce, it’s also investing in finance and entertainment operations. The company offers high-definition movies and TV shows through its set-top boxes and has a stake in online video site Youku Tudou Inc.

Zhejiang Ant Small & Micro Financial Services Group Co., the Alibaba financial affiliate that includes online payment system Alipay, is expanding in the U.S. and Russia.

Alipay has 17.9 million active users overseas in more than 100 countries and is accepted by 2,000 merchants, Sabrina Peng, vice president for Alibaba’s finance arm’s international business, said in October.

Ma said in October that Alibaba may cooperate with Apple Inc. for mobile payment services.

In September, the finance business won approval to jointly set up a non-state owned bank in China. The bank could start operations as early as in May, the official Xinhua News Agency reported citing Ant Financial vice president Yu Shengfa.

To contact the reporters on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net; Bonnie Cao in New York at bcao4@bloomberg.net To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Dave McCombs, Robert Fenner

By: Lulu Yilun Chen and Bonnie Cao.