China's Alibaba erases gains, hit by growth concerns

By Alison Leung

HONG KONG (Reuters) - Shares in China's top e-commerce firm, Alibaba.com Ltd (1688.HK), fell more than 2 percent on Wednesday as worries over customer growth and a slowing global economy overshadowed its forecast-beating quarterly results.

Analysts also expressed concerns about the company's stretched valuation, as well as the impact of a global slowdown and weaker Chinese exports on Alibaba, which serves mainly small- to medium-sized firms looking to import and export Chinese goods.

"The stock is trading at a (price-to earnings) multiple of around 70 times, much higher than its peer Tencent's (0700.HK) 44 times," said Kenny Tang, associate director at Tung Tai Securities.

"It will be difficult for the stock to maintain its current level if the firm cannot sustain its earnings growth."

Alibaba, in which U.S. Internet firm Yahoo (YHOO.O) is a major shareholder, ended down 2.6 percent at HK$15 after rising 5 percent to HK$16.16 shortly after the market opened. The loss was in line with a 2.5 percent drop in the benchmark index .HSI, which also gave up opening gains to track a slide in mainland Chinese stocks.

Some analysts said the expiration of a lock-up period on IPO shares had created an additional negative overhang on the stock.

The online-business-platform provider granted slightly more than 400 million shares, or around 8 percent of the company, to its employees during its initial public offering last November under a lock-up period.

About 160 million shares, or 40 percent of the employee shares, became tradable on Wednesday and the remaining 60 percent could be traded in November, Alibaba spokeswoman Christina Splinder told Reuters.

EARNINGS STRONG, MOMENTUM FADING

Alibaba reported late on Tuesday a net profit of 300.7 million yuan ($43 million) for the first quarter, beating forecasts, and more than double the 142.1 million yuan earned in the same period in 2007.

But Cazenove downgraded the stock to underperform from outperform on Wednesday and revised down forecast earnings by 9 percent and 20 percent, respectively, for 2008 and 2009.

"Paying member growth decelerated due to the company's sales force restructuring and the momentum is not likely to resume until the third quarter," it said in a research note.

Brokers also said the stock lacked short-term catalysts after Microsoft (MSFT.O) walked away from its bid to buy Yahoo.

Microsoft's offer earlier this year had lifted the valuation of Internet firms, including Alibaba, although the management of Alibaba said such a move would be neutral to the company.

"If the merger does not happen, we have nothing to lose," David Wei, Alibaba's Chief Executive Officer, told a teleconference on Tuesday.