NEW YORK (AP) — Alibaba's Group shares dropped 10 percent on Thursday after the Chinese e-commerce powerhouse reported holiday-quarter revenue that surged 40 percent but missed analyst expectations.

It was the second day of stock decline following news Wednesday that the Chinese government had issued a report critical about Alibaba's efforts to deal with counterfeiting.

The two-day decline has shaved about $38 billion off the company's previous $264 billion market capitalization and is making some wonder if the bloom is off the rose for investors, who had clamored to buy the stock in September when Alibaba went public in the biggest IPO ever.

Stifel Nicolaus analyst Scott Devitt said the honeymoon period was ending and cut his rating to "Hold" from "Buy" based on increased risk of clashes with the Chinese government and lower revenue expectations.

Still there were some highlights in the report. Alibaba's adjusted fourth-quarter earnings beat expectations as its user base continued to grow and shoppers bought more on mobile phones.

In the October to December quarter, net income fell 28 percent to 5.84 billion yuan ($957 million), or 37 cents per share, from 8.27 billion yuan a year ago. Excluding one-time stock option and other costs, earnings totaled 81 cents per share. That beat analyst expectations of 75 cents per share, according to a survey by FactSet.

But revenue during the crucial holiday quarter was disappointing. Although revenue climbed to 26.18 billion yuan ($4.22 billion) from 18.75 billion yuan, it fell short of expectations for $4.44 billion.

Alibaba's users increased use of its platforms like Taobao Marketplace and Tmall.com on their mobile phones. Annual active buyers rose 45 percent in 2014 to 334 million, while mobile monthly active users rose 95 percent in 2014 from 136 million to 265 million.

Addressing the Chinese report In a call with analysts on Thursday, the vice chairman Joe Tsai said the company believed the report is flawed and unfairly targeted Alibaba. Some analysts have said Alibaba should have disclosed that meeting in its IPO filing, but Tsai said that the meeting with regulators in July was one of many regular meetings "in the normal course of business," rather than a formally announced investigation.

"We believe the flawed approach taken in the report, and the tactic of releasing a so-called 'White Paper' specifically targeting us, was so unfair that we felt compelled to take the extraordinary step of preparing a formal complaint to the SAIC," he said. He also said that the SAIC, a Chinese government regulator, has removed the report from its Web site.

Tsai said the company was devoting more resources to the "fight against fakes" but said it had more work to do. "In the global e-commerce marketplace there will always be people who seek to conduct illicit activities, and like all global companies in our industry, we must continue to do everything we can to stop these activities."

Its shares fell $8.59, or 8.7 percent to $89.86 in midday trading.