Interview: Chief Financial Officer of Alibaba.com
>> china’s 10-year local currency bonds declined after a government report showed a surprise pickup in inflation last month. that made for the biggest tphrugs waeugs of any government debt market today. the chinese government report july consumer prices rose faster than many economists expected. and last week china’s central bank said it expects inflation to pick up in the fourth quarter. one assistant fund manager in shanghai says “some investors are concerned inflation will rise so they’re selling bonds.” chinese bonds are also hurt by the attractiveness of stocks. and a key chinese stock index approached a four-month high today. that followed a published report that foreign investors are putting more money into the chinese stock market . so let’s turn to the bloomberg terminal. what we have made is a chart that shows the chinese 10-year bond maturing in february 2015 and today the price fell 12.1 yuan per 1,000 yuan face value that. sent yield to a three-week high of 3.37%. that is an increase of 14 basis points from yesterday. well, it is official. yahoo agreed to pay $1 billion in cash for 40% stake in alibaba.com. this designed to catch up with ebay by investing in china’s biggest online retailer. with the deal, yahoo will become alibaba’s biggest investor. alibaba will take over the chinese operation. the chief financial officer of the chinese company joins us now by telephone. we thank you for joining us.
>> thank you. good to be here.
>> at this very early hour for you. let’s start off, why due choosea haos as your partner?
>> well, in this deal, yahoo brings a great collection of assets which will bring in a lot of synergies to our business. we are in the e-commerce business, both in b to b and consumer. we have an online payments business also. what yahoo brings in is a search engine business and also a good consumer portal business that has very strategic product lines like email and instant messaging. we see a very interesting strategic mix.
>> let’s talk about that given the new capital you have to work with and the new partner, how will you change? what’s the key thing you will do now that you will work with yahoo?
>> one of the key things is to build up the search business in china. as you know, recently baidu went public. they’re now the leader in the market . the yahoo asset is not far behind. we’ll focus on building that business.
>> can you give us a sense -- what are sales and profit forecasts in coming quarters?
>> we’re a private company and we’re not giving forecasts.
>> is the company already profitable?
>> yes. alibaba’s core b to b business is profitablement we are jean rating free cash flow and we were profitable last year.
>> and, joe, due consider selling and why didn’t you sell shares in an i.p.o. baidu getting so much press and a surge in shares on the first day of trading. was that something you considered?
>> we always keep our options open. strategically the right thing for taos do is stay a private company and bring in yahoo’s assets so that we can execute the strategic plan. the management team of alibaba has always been long term in terms of focused on a sustainable business in the long run. we feel going public right now is a little too early.
>> joe, we leave it there because we’re out of time. thank you for joining us.
>> thanks very much, ellen.
>> the chief financial officer of alibaba.com. we take a break and come back with our “chart of the day.” goldman sachs’ economists say china’s growth is important. we stick with the china theme. they say pay attention to revolver rye in japan as well as europe. our editor-at-large tom keene has the chart. he will join us straight away to explain.
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Interview: James Schneider of Dell
>> dell forecast missing analyst estimates. joining us now is james schneider of dell. what went wrong in the quarter?
>> i don’t think anything necessarily went wrong. we beat our unit volume projections by growing units 25% and taking significant revenue share. what didn’t happen is those additional units did not bring along quite as much revenue as we thought it would. we were slightly short of guidance on revenue but yet still made our e.p.s. projections. you know, that softness in our consumer and public segments in the u.s. carry over into the third quarter. you have that similar trending we should have solid revenue growth and e.p.s. growth in the third quarter as well.
>> if you were selling the number of units you anticipated, it sounds like pricing was problem. due have to cut prices in the quarter more than you had anticipated? what was the issue there?
>> well, there are subtle differences really. i think we probably could have executed slightly better in terms of having a little bit more revenue per unit. when you are driving for the kind of share growth that we have at 25%, that sometimes gets a little bit difficult. we also saw that the federal government space in the u.s. was very soft. we actually had declines in the segment year over year. and u.s. consumer business, again, just with affordability of technology, partly driven by people like us who lowered the price point. you are seeing more units being sold at lower prices. it’s not necessarily a profit issue. it’s just a makeup of a machine. our profitability actually was fine. if anything we have improved our profitability as a percent of revenue from the prior year.
>> well, give us that overview then. are consumers willing to buy or are they not willing to buy at a certain price?
>> yeah, you saw consumer growth was actually quite good. it’s in the probably high teens. but the affordability of technology now that you are able to buy a notebook for only a few hundred dollars, are you seeing people buying machines but yet buying them at lower price points. while it is still profitable, you have to sell so many more units. i mentioned we actually had 25% unit growth with 15% revenue growth. again, we did have 23% e.p.s. growth. we’re really happy with the financial results that we turned in at the bottom line. again, a little short on revenue but made the profitability. >> in terms of how investors are reacting, those shares are taking a tumble in extended hours. what is your reaction to the investor reaction?
>> i think this will smooth out over time. people are very concerned. they watch our growth rates very closely and if we’re slightly below guidance, people will be apprehensive at first. if you look at this over time with the ability of a company of our size, guidance we gave for next quarter has $900 million of sequential revenue growth and puts us on a trajectory of annualized revenue growth of $57 billion. we continue to grow this company very rapidly on what is now a very large base.
>> how does this, if at all, affect your goal of within four years geting to $80 billion in sales?
>> well, it doesn’t really. we’re still on that same trajectory. this kind of shortfall by a couple of percentage points and in a couple parts of our business doesn’t change the trajectory of where we ra going with this company. for us to continue to move on from where we are to hit the target in three to four year sincere doable.
>> what is the outlook for corporate sales? we have talked about the government and the consumer. you haven’t mentioned corporate sales which are key.
>> it’s really been good. it’s both corporate. we are doing well on other strategic initiatives. our ability to grow the company outside the u.s. has been key. that growth in this quarter was 24%. so when i mention we have 15% revenue growth, we have 24 outside the u.s. we have single digit actually in consumer and in our public segment. then in the teens back in the business segment. the business spending has been quite healthy. we are see ago market pretty stable. there is plenty of units out there. it’s really a matter of getting the right kind of revenue per unit to meet our revenue targets.
>> so what happens to pricing then in the third quarter and in the fourth quarter? what are your plans there? will you attempt to hold prices steady or will you have to cut prices further?
>> i think the differences are pretty subtle. i think if we could over the course of this quarter, if we’ll sell 10 million units, it’s a matter of can you get maybe $10 or more a unit and be careful with your pricing. i don’t think you’ll see real changes in pricing here. the competitive environment is very keen. but i mean the subtle differences can make a difference of $100 million or more in revenue and really be the difference in people’s expectations.
>> mr. schneider, thank you for joining us. have a wonderful evening.
>> great. nice talking to you.
>> james schneider, chief financial officer with dell. shares are lower in the extended hours. we’ll take a quick break and come back with the latest on yahoo and alibaba.com.
