Alibaba Group Holding’s shares fell the most in 18 months and cut its market valuation by about $30 billion after investments in bricks-and-mortar assets and digital media squeezed profit margins in the December quarter.
The Chinese e-commerce giant reported revenue that topped analyst estimates and raised its growth forecast for the 12 months ending in March to 55 to 56 per cent. But operating margin shrank to 31 per cent in the last quarter from 39 per cent a year earlier. Shares fell 5.9 per cent in New York trading, the sharpest decline since June 2016.
Alibaba will also buy 33 per cent of Ant Financial, helping to clear the way for an initial public offering of the Chinese payments giant. While no cash is changing hands, Ant Financial will end royalty payments to Alibaba that were worth more than $300m last fiscal year.
Alibaba has not held a stake in the owner of Alipay since founder Jack Ma controversially spun out the business in 2011.
Ant Financial has had a string of recent setbacks, with its US expansion thwarted by the collapse of a deal for MoneyGram International while its Chinese business faces greater scrutiny from regulators and increased competition from Tencent Holdings.
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“This acquisition of Ant Financial’s stake could be a preparation for its potential IPO,” said Steven Zhu, a Shanghai-based analyst with Pacific Epoch.
Formally known as Zhejiang Ant Small & Micro Financial Services Group Co, Ant Financial operates Alipay as well as money market funds and credit scoring. It’s based in Hangzhou, China, the same hometown as Alibaba.
Once dominant in China, Alipay’s share of online payments in the country has slumped to 54 per cent as of the end of September amid the rise of Tencent’s WeChat platform, according to research firm Analysys International. Chief financial officer Maggie Wu said on a conference call that investors should not equate lower margins with lower profits, as the overall business is growing.
“We are making the pie much bigger,” she said. “60 per cent of an apple compared with 40 per cent of a watermelon, which one do you want?"
