INTERNET: Alibaba Trims New Graduate Hiring

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Update: Since originally writing this post, Alibaba has put out a statement denying it is reducing graduate hiring, and says it has sent more than 1,400 job offer letters to graduating students for 2016 (Chinese article)

Bottom line: Alibaba’s reduction in its university recruiting program is an extension of a hiring freeze announced earlier this year, and is part of a much-needed effort to make its large headcount more efficient.

Alibaba trims campus recruitment

In what some may interpret as a sign of trouble, media are reporting that e-commerce leader Alibaba (NYSE: BABA) is sharply scaling back its recruitment of new college graduates. The interpretation of trouble is relatively obvious, since Alibaba has wooed investors with its breakneck growth story since its record IPO last year. Thus a sharp slowdown in hiring of young talent could signify a parallel slowdown in overall growth.

But the news shouldn’t come as a huge surprise, since Alibaba announced just 4 months ago that it would freeze its global headcount for the rest of the year. (previous post) That move was aimed at giving the company time to rationalize its huge workforce of 30,000, many of whom have joined as a result of Alibaba’s lightning growth that has included numerous acquisitions over the last 2 years.

As an observer who has visited many Chinese Internet companies, I can say with absolute certainty that fresh college graduates and people just a year or two out of college account for a big portion of employees at these firms. Such an emphasis on youth and inexperience often leads to chaotic situations where young people are given big responsibilities long before they are ready for them. As a result, turnover rates are often high and efficiency is equally low.

Against that backdrop, this latest move by Alibaba probably looks quite prudent, since the company undoubtedly has many such young people already in its workforce who aren’t being managed efficiently. According to the reports that cite a financial news site, Alibaba will recruit just 400 fresh graduates from university campuses next year, a huge cut from its plans to hire 3,000 such new workers this year. (English article; Chinese article)

Reasons given for the slowdown are rather vague, with one report citing changes to the company’s recruitment policy and raising of its recruitment criteria. The same reports add that leading group buying site Meituan is implementing a similar slowdown in hiring of new college graduates, and reportedly took down all of its job listings for graduating university students over the last few days.

Earlier Hiring Freeze

Word of Alibaba’s plans to slow down college graduate hiring come just months after it announced the earlier hiring freeze at the end of April. That news was revealed in a publicly released transcript of a speech by Chairman Jack Ma, who said that new people would still be hired to fill newly vacated positions but that total headcount would remain at 30,000 through the end of 2015.

Investors are almost certain to worry over this latest hiring slowdown, as they seem to be looking for almost any reason to sell Alibaba’s stock these days. One year after its landmark IPO, Alibaba shares have gone on a roller coaster ride that saw them initially soar as much as 75 percent above their offering price, only to plummet later due to profit taking and worries about future growth prospects. The shares closed out last week at a record low of just under $64, or 6 percent their IPO price, and I suspect they could fall further this week.

Perhaps the pessimists are right, that this new plan offers further evidence that Alibaba’s growth prospects aren’t quite as rosy as many have hoped. To give some perspective, global e-commerce rival Amazon (Nasdaq: AMZN) has about 150,000 employees, while Facebook (Nasdaq: FB) had less than 10,000 as of a year ago. It’s probably more appropriate to compare Alibaba to Facebook, since neither is nearly as international or old as Amazon. Thus Alibaba’s headcount, at 3 times the size of Facebook’s, is indeed probably in need of some rationalization. Such a move would help to improve its efficiency and ultimately boost its profits, as it tries to regain some of its fading momentum.

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