Alibaba.com Ltd, operator of China’s biggest online commerce site, said third-quarter profit fell 20 percent as the company boosted spending to attract product listings from clients.

Net income declined to 236 million yuan ($35 million) in the three months ended Sept. 30 from a restated 296.6 million yuan a year earlier, the Hangzhou, east China-based company said today. That compares with the 231 million yuan median estimate of three analysts in a Bloomberg survey.

Alibaba, used by companies including Wal-Mart Stores Inc. and Procter & Gamble Co. for purchasing goods, lowered listing fees and raised marketing spending to add customers and counter falling demand for Chinese exports. The Internet operator is stepping up expansion in overseas markets including India and Japan to diversify from China, where it gets more than 90 percent of sales.

“Profit margins are declining because of higher marketing spending and lower fees,” Victor Yip, who rates Alibaba shares “hold” at UOB Kay-Hian Ltd. in Hong Kong, said before the announcement. “The company needs to maintain revenue growth by adding clients because the stock now has high valuations.”

Alibaba, which rose 3.5 percent to close at HK$18.38 in Hong Kong trading before the earnings announcement. The shares and those of Baidu Inc., China’s biggest Internet search-engine have more than tripled this year amid rising demand in the world’s biggest Internet market by subscribers.

Overseas Revenue

Revenue from the International Marketplace division, which allows Chinese exporters to market products to overseas buyers, rose 33 percent to 639.3 million yuan, Alibaba said. The China Marketplace division, which operates the company’s domestic Web site, increased sales 28 percent to 378.3 million yuan, it said.

In November 2008, Alibaba started offering so-called “starter-packs” with subscription fees as much as 60 percent lower than existing services. The Chinese company plans to use $30 million on marketing its Web site outside China this year, it said at the time.

Alibaba’s first-quarter profit of 253.4 million yuan would have been 50 million yuan higher without the marketing efforts, Chairman Jack Ma said in May.

China’s exports fell 15.2 percent in September, the slowest pace in nine months, according to government data. Overseas sales of Chinese-made goods may rise in the fourth quarter as orders recover, Alibaba Chief Executive Officer David Wei forecast in August.

Sales and marketing expenses rose to 463.1 million yuan in the third quarter, from 281.4 million yuan a year earlier, Alibaba said.

Alibaba had 52.6 percent of the so-called business-to- business e-commerce market in China in 2008, according to research company IResearch Consulting Group. Global Sources Ltd., in second place, had 12.1 percent, IResearch said.

Source: Bloomburg