Updated from 9:52 a.m. with additional information.
Shares of Alibaba (BABA) were down about 1.7% to $118.71 in morning trading on Thursday as investors focused more on the Chinese internet giant's lower-than-expected earnings for the 2016 fourth quarter, rather than its significant top-line growth.
The company posted earnings of 63 cents per share, missing consensus estimates for 66 cents per share. Revenue beat expectations at $5.6 billion, vs. expectations for $5.2 billion and represented a 60% year-over-year growth, the largest increase since its IPO in September 2014. In addition, the company announced that it would buy back shares worth up to $6 billion over two years. Shares fell about 3% after the report came out but have been slowly recovering in the morning trading session.
The stock has had an impressive run-up of over 32% year-to-date and hit a 52-week high of $124.34 on Monday. Tigress Financial Partners chief investment officer Ivan Feinseth said he thought Thursday's sell-off could be a good buying opportunity. "I thought it was a good quarter because I focus on economic profit and revenue," he added.
The earnings miss comes as a surprise as Alibaba has a history of beating on earnings, but the profit growth of 85% year-over-year to $1.4 billion was in line with the positive results e-commerce rival JD.com (JD) reported earlier this month, including its first profitable quarter, as well as rival Tencent's (TCEHY) rise in profit reported this week. The results also match a recent report from the Chinese government that the world's second largest economy grew 6.9% in the first quarter and a report from The National Bureau of Statistic that said Chinese retail sales increased by 10.9% year-over-year in March.
But Alibaba increased its spending as it looks to diversify its business and build out its cloud and media and entertainment businesses. The company is still heavily dependent on its e-commerce platform, which reported a 47% increase in revenue to $4.95 billion.
"Our core commerce segment continued its significant growth and strong cash flow at large scale, enabling our aggressive investment in cloud computing, digital media and entertainment to drive the digital transformation of the economy and high-quality consumption across China," Alibaba CEO Daniel Zhang said in the announcement.
Feinseth said Alibabai has to spend money on its future if it wants to keep growing. That includes spending on marketing, hiring and infrastructure.
He noted that Facebook has seen significant growth after spending signficantly to buy WhatsApp and Instagram, while Alphabet's (GOOGL) Google is patting itself on the back for buying YouTube. But both internet giants were initially criticized for the purchases. "[It] went from 'those are the dumbest moves ever' to 'those are the most incredible moves ever,'" Feinseth said. "In the same way, Alibaba has to invest to create a more efficient business."