Alibaba Earnings Rise as Chinese Government Ponders New Regulations

Alibaba.com is the Hong Kong-listed unit of Alibaba Group, a Chinese B2B e-commerce company that is 39%-owned by Yahoo! Inc. (NASDAQ:YHOO). Alibaba.com reported better-than-expected earnings and revenues this morning, but saw its share price fall more than 5% on what most observers believe was normal profit-taking.

The company’s net income for the full year was down 12%, due to the global economic slowdown and losses in its business management software group. But the company has big plans going forward, having just announced a hook-up with eBay Inc.’s (NASDAQ:EBAY) PayPal as a payment service for a new online sales platform called AliExpress.

Alibaba Group has developed its own electronic payment service, called AliPay, and both PayPal and AliPay will be accepted for purchases on AliExpress. Maybe.

The Chinese government is preparing to release final regulations for third-party payment systems like AliPay. China has more than 300 different electronic payment systems currently active, and all of them are presumably making a profit. The earliest systems were government-controlled, but the advent of payment systems like AliPay and online game provider Tencent’s Tenpay has shifted the industry to an uncontrolled gaggle of privately held firms.

China’s central bank is also adding an electronic system that will act as a central access point to the central bank’s national electronic payment system. The access point, called the ‘Super Online Bank’, is scheduled to launch in August with about a dozen commercial banks as its first users. Third-party operators say that there is no indication yet that they will be included in the new system.

If the third-party systems don’t get access to the Super Online Bank, that is tantamount to being shut down for lack of a business license.

Neither the AliPay system nor the PayPal system is likely to be shut out of the centralized online system forever, but it is possible that inclusion could be delayed beyond the end of the year. That could have a negative impact on Alibaba’s, and Yahoo’s, revenues and earnings for the second half of 2010.

Yahoo’s Japanese subsidiary has also entered into a joint development program with Alibaba’s Taobao.com, China’s largest web-based retail site. That site could serve as many as 250 million customers in China and Japan, and very likely would replace Ebay as the world’s largest online marketplace. Having an authorized online payment system available is critical to the success of this venture.

Paul Ausick