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Alibaba Stocks Drop 2.4 Percent Despite Beating Wall Street Predictions on Revenue, Earnings

| Nov 07, 2016 01:40 AM EST

Alibaba is Sinosoft Technology's second-largest shareholder with 13.32 percent stake in the company

Despite exceeding Wall Street's predictions on both earnings and revenue, Alibaba stocks fell 2.4 percent as trading closed on Nov. 2, according to an article published by qz.com.

Tim Culpan at Bloomberg Gadfly noted that Alibaba stocks were down 0.6 percent before the market opened that day but regained its losses in early trading. However, short interest in the stock continued to rise.

About 70 percent of Alibaba's revenue comes from its retail e-commerce business which serves mostly customers on mainland China who use Taobao, a consumer marketplace, and T-Mall, a virtual shopping mall.

The strength of this sector is measured by the number of active users, or any user who places an order on the two shopping platforms during the year.

The report however said that the number of active users in China is barely growing in each quarter, which raised concerns that its appeal to Chinese consumers may have reached its limit.

This could also explain why investors are skeptical of Alibaba stocks, the report said.

This could also be the reason for the Chinese e-commerce giant to look outside its domestic market for growth and expansion.

In April, it bought a controlling stake worth $1 billion in Lazada, an online retailer company developed by Rocket, which is focused on the Southeast Asian market.

Lazada, on the hand, announced recently its acquisition of Singapore online retailer RedMart for about $30 to $40 million, according to Techcrunch.

According to the report, Alibaba's move was not aimed at expansion but in protecting its business. Techcrunch said that Amazon, Alibaba's rival, is planning to enter Southeast Asia next year. Reports said that the U.S. company is building up its cold-chain capability as it is set to launch its online grocery service that will compete directly with Lazada and Alibaba's RedMart.

The report pointed out two challenges that Alibaba has to face. One is finding a way to increase the number of mainland shoppers and the second is building a new business for millions of customers in Southeast Asia through the startups he had acquired.

The report added that Alibaba has to overcome the two challenges as Amazon is set to take a market share in China by introducing Prime and make a launch in Singapore.

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