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Alibaba is a large part of the current YHOO hype --- and it will continue to be until IPO.


Time for Alibaba to Fill In Blanks

MARKETWATCH 7:46 AM ET 04/16/14

Symbol Last Price Change
YHOO 34.21down 0 (0%)
AMZN 316.08up 0 (0%)
EBAY 53.9up 0 (0%)
QUOTES AS OF 04:00:00 PM ET 04/15/2014

Alibaba's fourth-quarter numbers look good. But as the Chinese e-commerce giant gears up for a U.S. listing, it still has a lot of questions to answer about its future direction.

Revenue rose by 66% from a year earlier, with growth accelerating from 51% in the third quarter, but that's not a big surprise. It has been well known for months that Alibaba enjoyed a blowout "single's day" on Nov. 11, when merchants on its two shopping platforms offer deep discounts.

What is more encouraging is that Alibaba's operating profit margin, which has been on a declining trend for the past two quarters, rebounded sharply to a high of 54% from 44% in the previous quarter.

The bare-bones numbers, released by Alibaba shareholder Yahoo(YHOO)!(YHOO) on Tuesday, don't provide any explanation for the trends in revenue and margins. These are among the blanks that will have to be filled in by Alibaba's regulatory filings, possibly coming as soon as this month, for its initial public offering.

The company's likely profitability will be a key concern for investors. Alibaba is highly profitable compared with many e-commerce firms thanks to its asset-light strategy, which largely leaves the burden of delivery and warehousing to third parties. There have been indications that the company will start to invest more in this area but just how much is unclear. Smaller e-commerce rival JD.com, which is also preparing for a U.S. listing, pitches its in-house logistics capabilities as a differentiator, but isn't yet profitable.

Similarly, Alibaba hasn't been very forthcoming on the reasons for many of its acquisitions. So far this year, it has spent more than $2.6 billion, nearly three quarters of 2013 net profit, investing in an online mapping firm, a department-store chain and a film studio. This month, an investment firm controlled by Chairman Jack Ma and another Alibaba co-founder spent $1.05 billion to buy a 20% stake in a cable and Internet television company.

The risk is that profitability will be eroded as Alibaba ventures far from its core competency. In video, Alibaba may be trying to duplicate the success of Amazon.com(AMZN), turning a platform for buying physical goods into a media- streaming service. But until the company offers more details, investors can't know for certain.

The biggest unknown is what valuation Alibaba will seek, and what investors will be willing to pay after the recent tech selloff, which has hit established e-commerce names such as Amazon(AMZN) and eBay(EBAY) along with highflying social networks and Chinese Internet plays.

Analysts at Macquarie said in a note Tuesday that Alibaba could be worth $160 to $180 billion, or 45 to 51 times 2013 earnings. To justify multiples like that, the company will have to show that it can keep growing its top line at a blistering pace, and stay highly profitable, for years to come. Over to you, Jack.

Write to Aaron Back at [e-mail]

-Aaron Back; 415-439-6400; [e-mail]

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