Alibaba (BABA) Surpasses Q4 Earnings & Revenue Estimates

Alibaba Group Holding Limited BABA reported fourth-quarter fiscal 2019 earnings of $1.28 per share, surpassing the Zacks Consensus Estimate by 23 cents. Also, the bottom line increased 40.7% year over year.

It reported revenues of RMB93.50 billion (US$13.93 billion), up 51% from the prior-year quarter. Also, revenues surpassed the Zacks Consensus Estimate of US$13.51 billion.

The revenue increase was driven by strength in the company’s China commerce retail business, the consolidation of Ele.me and strong sales growth of Alibaba Cloud.

Coming to price performance, shares of the company have lost 10.4% over the past year compared with the industry’s 5% decline.

Revenues by Segments

Alibaba has four reportable segments — Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives. The details of these segments are discussed below.

Core Commerce: This segment comprises marketplaces operating in retail and wholesale commerce in China, and international commerce. The segment’s revenues in the quarter totaled RMB78.9 billion (US$11.8 billion), reflecting an increase of 54% on a year-over-year basis.

China commerce retail business (63% of total revenues) — The business vertical’s revenues in the quarter were RMB58.4 billion (US$8.7 billion), reflecting an increase of 45% year over year. The increase was driven by contributions from direct sale businesses, including Tmall Direct Import and Freshippo. Combined customer management and commission revenues recorded strong growth in the quarter.

China commerce wholesale business (3% of total revenues) — This business generated revenues of RMB2.5 billion (US$380 million), reflecting an increase of 35% from the year-ago quarter. The increase was due to a rise in average revenues from paying members.

International commerce retail business (5% of total revenues) — Revenues in the quarter were RMB4.9 billion (US$737 million), increasing 25% year over year. The increase was driven by consolidation of Trendyol, Turkey’s leading e-commerce platform, and an increase in revenues from AliExpress. However, Lazada’s revenues decreased 4% from the prior-year quarter due to a decrease in revenues generated from the company’s direct sales business.

International commerce wholesale business (2% of total revenues) — This business generated revenues of RMB2.1 billion (US$318 million), increasing 26% from the prior-year quarter. The growth was due to an increase in the number of paying members on alibaba.com platform.

Cainiao logistics services (4% of total revenues) — This business generated revenues of RMB3.9 billion (US$575 million). The segment represents revenues from domestic and cross-border fulfilment services provided by Cainiao Network, after elimination of inter-company transactions.

Consumer services (5% of total revenues) — This business generated revenues of RMB5.3 billion (US$785 million).

Others business (2% of total revenues) — The business generated revenues of RMB1.7 billion (US$253 million), reflecting an increase of 143% year over year.

Cloud Computing: This segment comprises Alibaba Cloud that offers a complete suite of cloud services. Revenues in the quarter were RMB7.7 billion (US$1.2 billion), up 76% from the year-ago quarter, driven by an increase in average spending per customer.

During the quarter, Alibaba Cloud launched major products in areas of graph database, anti-bot protection, blockchain-as-a-service and real time communications, thereby expanding cloud revenues.

Digital Media and Entertainment: The segment operates businesses through media properties that include UCWeb, Youku Tudou, OTT TV service, Alibaba Music and Alibaba Sports. Revenues were RMB5.7 billion (US$845 million), reflecting an increase of 8% on a year-over-year basis. The segment’s top-line growth was driven by an increase in revenues from mobile value-added services provided by UCWeb such as mobile search and game publishing.

Innovation Initiatives and Others: This segment includes businesses such as the YunOS operating system, AutoNavi, DingTalk enterprise messaging and others. Revenues in the quarter were RMB1.2 billion (US$180 million), up 22% year over year, driven by an increase in revenues from news feeds and mobile search, along with subscription and advertising revenues from Youku Tudou and Tmall Genie.

Key Metrics

Mobile Monthly Active Users (MAUs) — Mobile MAUs were 721 million, improving 16.8% from the prior-year quarter and 3.1% sequentially. This improvement was caused by an increase in the adoption of mobile devices by consumers, as the primary method of accessing Alibaba’s platforms.

Annual Active Buyers — China retail marketplaces had 654 million annual active buyers, reflecting 18.5% year-over-year growth and 2.8% sequential improvement.

Operating Results

Alibaba’s operating expenses (product development + sales and marketing + general and administrative) of RMB25.9 billion increased 37.3% from a year ago.

Operating margin was 9%, down 600 basis points year over year.

Adjusted EBITDA increased 29% year over year to RMB25.2 billion (US$3.8 billion).

Balance Sheet

Alibaba exited the fiscal fourth quarter with cash and cash equivalents, as well as short-term investments of approximately RMB193.2 billion (US$28.8 billion) compared with RMB192.3 billion in third-quarter fiscal 2019.

Cash Flow/Share Repurchase

Net cash flow from operations was RMB18.6 billion (US$2.8 billion) while free cash flow was RMB10.7 billion (US$1.6 billion) in the fiscal fourth quarter.

Fiscal 2020 Guidance

Management expects its fiscal 2020 revenue guidance to be more than RMB500 billion.

Alibaba Group Holding Limited Price, Consensus and EPS Surprise

 

Alibaba Group Holding Limited Price, Consensus and EPS Surprise

Alibaba Group Holding Limited price-consensus-eps-surprise-chart | Alibaba Group Holding Limited Quote

Zacks Rank and Stocks to Consider

Currently, Alibaba has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include Facebook, Inc. FB, Shopify Inc. SHOP and AXT, Inc. AXTI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth for Facebook, Shopify and AXT is currently projected at 20.2%, 23.7% and 15%, respectively.

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