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Alibaba (BABA) Lags Q4 Earnings Estimates, Tops Revenues

Alibaba Group Holding Limited BABA reported fourth-quarter fiscal 2016 (ended Mar 31, 2016) earnings of 20 cents per share, missing the Zacks Consensus Estimate of 38 cents. The adjusted figure excludes one-time items but includes stock-based compensation expense.

Following the results, Alibaba shares lost 0.10% in after-hours trading. Increasing costs associated with new businesses initiatives, rising logistics and order-fulfillment costs weighed on the company.

However, despite a sluggish Chinese economy, solid growth in Alibaba’s mobile business as well as strength across most of the core operating metrics remained impressive.

Revenues

Alibaba reported revenues of RMB24.18 billion (US$3.8 billion), up 38.8% sequentially and 19.5% year over year, driven by strong mobile revenues. Also, revenues surpassed the Zacks Consensus Estimate of $3.58 billion.

Principal Components of Revenues

Revenues from total China commerce business were RMB19.4 billion. The retail business recorded RMB18.3 billion (US$2.8 billion) in revenues, up 41% year over year driven by growth in online marketing services revenues and commission revenues. Wholesale business revenues came in at RMB1.08 million (US$168 million), up 28% year over year, supported by an increase in paying members and average revenues from them.

Revenues from total International commerce business were RMB1.9 billion. Its retail business revenues were RMB590 million (US$92 million), up 35% year over year. Wholesale business revenues were RMB1.40 billion (US$216 million), up 16% from the year-ago period backed by growth in spending on value-added services such as the import/export business solutions provided by One Touch.

Revenues from Cloud computing and Internet infrastructure soared 175% year over year to RMB1.07 billion (US$165 million) and contributed 4% to total revenue.

Revenues from Others were RMB1.71 million (US$266 million), up 14% from the year-ago period and accounting for 8% of total revenue. The improvement was driven by an increase in mobile Internet services revenues from the UCWeb and AutoNavi businesses.

Key Metrics

Gross Merchandise Value (GMV) – Total China retail marketplaces GMV came in at RMB742.0 billion (US$115.0 billion), up 24% year over year. Taobao Marketplace GMV increased 18% from the year-ago period to RMB449.0 billion (US$70.0 billion) and Tmall GMV of RMB293.0 billion (US$45.0 billion) rose 34%. The increase in GMV was driven by an increased number of active buyers.

Annual Active Buyers – China retail marketplaces had 423 million annual active buyers in the 12-month period ended Dec 31, 2016, representing a 21% year-over-year growth.

Mobile GMV – Mobile GMV was RMB541.0 billion (US$84 billion), representing a 78% year-over-year surge. Mobile GMV accounted for 73% of total China retail marketplaces GMV against 68% last quarter and 51% in the prior-year quarter. The upside primarily came on the back of more users accessing platforms through mobile devices and an increase in the level of their spending.

Mobile Monthly Active Users – Mobile MAUs grew to 410 million, improving 42% year over year, driven by the increased adoption of mobile devices by consumers as the primary method of accessing Alibaba’s platforms.  

Margins

Pro-forma gross margin was 60.5%, down 784 basis points (bps) sequentially and 434 bps year over year.

Alibaba’s adjusted operating expenses of RMB7.68 billion increased 4.6% from the year-ago period. Pro-forma operating margin was 28.7%, down 49.3% sequentially but up 75.8% year over year.

Net Income

On a GAAP basis, Alibaba generated net income of RMB5.4 billion (US$.832 million) compared with RMB2.89 billion in the year-ago period.

Alibaba generated adjusted net profit of RMB3.08 billion compared with RMB3.11 billion in fourth-quarter fiscal 2015. Pro-forma earnings exclude charges related to the amortization of intangible assets, gain/loss on disposals/ deemed disposals/ revaluation of investments, and amortization of excess value receivable from the restructuring of commercial arrangements with Ant Financial, but includes stock-based compensation expense.

Balance Sheet & Cash Flow

Alibaba exited the fiscal fourth quarter with cash and cash equivalents and short-term investments of approximately RMB111.5 billion against RMB118.3 billion in the prior quarter.

Current bank borrowings were RMB4.3 billion against RMB3.0 billion in the last quarter. Long-term bank borrowings were RMB1.9 billion compared with RMB1.8 billion in the previous quarter.

Cash flow from operations was RMB5.08 billion (US$788 million) compared with RMB26.2 billion (US$4.0 billion) in the prior quarter. Capex was RMB0.68 billion against RMB2.4 billion in the last quarter.

Our Take

The Chinese e-Commerce goliath caters mainly to its native market. The company operates as a platform for third-party sellers and does not sell goods directly to merchants or hold inventory.

Alibaba reported decent fiscal fourth-quarter results with the top line surpassing the Zacks Consensus Estimate but the bottom line missing the same. The company recorded strong numbers across most of its metrics, including Mobile GMV, Annual active buyers and others. Moreover, the company continues to improve its monetization rate, which could boost profits.

Some of the current buoyancy surrounding the shares is related to Alibaba’s strong dominance in the mobile search market, increasing monetization rates, high growth traction in the cloud computing businesses and consistent product development efforts. Despite the weak economic environment in China, the company performed well, indicating higher-than-expected spending power of consumers and strong demand for its products.

Currently, Alibaba Group has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Travelport Worldwide Limited TVPT, Mercadolibre, Inc. MELI and Amazon.com Inc. AMZN. While Travelport sports a Zacks Rank #1 (Strong Buy), Amazon and Mercadolibre carry a Zacks Rank #2 (Buy).

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