Alibaba.com

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Investors generally know better than to expect a coherent long-term strategy from executives in the internet business. But when a $7bn company tears up its entire business model within a year of going public, it can be accused of pushing its luck.

Step forward Alibaba.com, operator of the leading online business-to-business marketplace in China, which went public in a delirious Hong Kong in November 2007, gaining almost 200 per cent on its first day. Its strategy, as spelled out in the prospectus, was to charge high annual membership fees from a select group of global importers and Chinese exporters. But as subscribers lapsed and sign-ups started to falter last year, it turned that on its head, seeking high volumes of customers paying less than 40 per cent of that annual fee. To protect gross margins, Alibaba would focus on “value-added services” – the more buyers and sellers were milling around, the more it could charge for keyword searches to match them up.

At the time of the IPO, Jack Ma, founder and chairman, defended the group’s valuation on the grounds that “China is a place where miracles are made”. But on the evidence of first-quarter numbers released this week, Alibaba.com may not need a miracle to pull off the transformation from elite private club to non-exclusive search engine. When the switch was announced last November, the stated goal was to have between 70 and 80,000 premium supplier customers within three years; it has got to 55,000, from 25,000, in a little over four months. Operating margins, which touched 46 per cent a year ago, are clambering back up: from 22 per cent in the fourth quarter to 34 per cent in the first.

A 50 per cent rise in the last fortnight means that Alibaba’s shares now trade roughly in line with other Chinese internet market leaders such as Baidu and Tencent. On the basis of this encouraging re-booting, parity is the least it deserves.

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