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Alibaba Group Holding Limited (BABA - Free Report) reported first-quarter fiscal 2017 (ended Jun 30, 2016) earnings of 52 cents per share, exceeding 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 gained 5.1%. The solid growth in Alibaba’s China retail and mobile business as well as strength across most of the core operating metrics remained impressive.
Revenues
Alibaba reported revenues of RMB32.15 billion (US$4.8 billion), up 33.0% sequentially and 58.8% year over year. Also, revenues surpassed the Zacks Consensus Estimate of $4.61 billion. The increase was driven by the continued revenue growth in China commerce retail business and the consolidation of newly acquired businesses (namely Youku Tudou and Lazada).
Revenue By Segments
Beginning from the first quarter fiscal 2017, Alibaba has commenced segment reporting. It will have four reportable segments — Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives. The details of these segments have been discussed below:
Core Commerce — The segment comprises marketplaces operating in retail and wholesale commerce in China, and international commerce. Revenues in the quarter was RMB27.2 billion (US$4.1 billion), up 47% year over year.
· China commerce Retail business (73% of total first quarter revenue) – This business vertical’s revenue in the quarter was RMB23.4 billion (US$3.5 billion), up 49% year over year. The increase was driven by robust growth of online marketing service revenue.
· China commerce wholesale business – This business revenue in the quarter was RMB1.26 billion (US$190 million), up 26% year over year. The growth was due to an increase in the average revenue from paying members.
· International commerce retail business – This business revenue in the quarter was RMB1.1 billion (US$168 million), up 123% year over year. The increase was driven by the consolidation of Lazada in mid-Apr 2016 and growth in revenue generated from AliExpress.
· International commerce wholesale business – This business revenue in the quarter was RMB1.4 billion (US$216 million), up 15% year over year. The increase was due to growth in revenue generated by the import/export related value-added services.
Cloud computing — This segment comprises Alibaba Cloud, offering a complete suite of cloud services. Revenues in the quarter were RMB1.24 billion (US$187 million), up 156% year over year, driven by an increase in the number of paying customers and their spending higher than usual, reflecting increased usage of services.
Digital media and entertainment — The segment operates businesses through media properties, including UCWeb, Youku Tudou, OTT TV service, Alibaba Music and Alibaba Sports. Revenues were RMB3.14 billion (US$472 million), up 286% year over year. The increase was due to the consolidation of Youku Tudou and, also, an increase in revenue from mobile value-added services provided by UCWeb, such as mobile search, news feeds 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 was RMB535 million (US$80 million), up 30% year over year. The revenue increase was driven by higher fees collected from Ant Financial (in relation to the SME loan business transferred to Ant Financial) and in YunOS revenue.
Key Metrics
Gross Merchandise Value (GMV) — Total China retail marketplaces GMV came in at RMB837.0 billion (US$126.0 billion), up 24% year over year. Taobao Marketplace GMV increased 19% from the year-ago period to RMB508.0 billion (US$76.0 billion) and Tmall GMV of RMB329.0 billion (US$50.0 billion) rose 34%. The increase in GMV was driven by an increase in the count of active buyers.
Mobile Monthly Active Users – Mobile MAUs grew to 427 million, improving 39% year over year, as adoption of mobile devices by consumers grew as the primary method of accessing Alibaba’s platforms.
Annual Active Buyers – China retail marketplaces had 434 million annual active buyers in the 12-month period ended June, 2016, representing 18% year-over-year growth.
Margins
Pro-forma gross margin was 63.5%, up 301 basis points (bps) sequentially but down 338 bps year over year.
Alibaba’s adjusted operating expenses of RMB9.14 billion increased 19.1% sequentially. Pro-forma operating margin was 35.0%, up both sequentially as well as year over year.
Net Income
On a GAAP basis, Alibabagenerated net income of RMB7.6 billion(US$1.14 million) compared with RMB30.8 billionin the year-ago period.
Alibaba-generated adjusted net earnings were 52 cents compared with 34 cents in first-quarter fiscal 2016. 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 falling cash and cash equivalents and short-term investments of approximately RMB89.4 billion against the higher RMB111.5 billion in the prior quarter.
Current bank borrowings were negligibly higher at RMB4.7 billion against RMB4.3 billion in the last quarter. Long-term bank borrowings were spectacularly higher at RMB21.7 billion compared with RMB1.9 billion in the previous quarter.
Cash flow from operations was a big jump to RMB15.0 billion (US$2.3 billion) compared with the not-so-significant RMB5.08 billion (US$788 million) in the prior quarter. Capex was a big sum of RMB2.79 billion against the miniscule RMB0.68 billion in the last quarter.
In the June quarter, Alibaba repurchased US$2.0 billion of shares, and the partners of Alibaba Partnership purchased US$400 million of the company’s shares, in a transaction with SoftBank.
The Chinese e-Commerce goliath caters mainly to its nativemarket. The company, which operates as a platform for third-party sellers,neither sells goods directly to merchants nor holds inventory.
Alibaba reported decent fiscal first-quarter results with both the top line as well as bottom line surpassing the Zacks Consensus Estimate. Apart from the fact that the company recorded strong numbers across most of its metrics, it’s also pertinent that,in terms of gross merchandise volume (GMV), Alibaba is China’s largest e-commerce company. Given such promise, it has still come under some controversy around the listing of fake items on the company’s services, but claims to be working towards addressing the issue.
Although China’s economic growth rate has slowed, the company was able to report improving revenues and GMV this quarter. Even so, Alibaba expects to hit $1 trillion in GMV by 2020 and reach 2 billion customers in the process.
Recently, Alibaba has been working extensively to expand its international presence. As part of this initiative, it plans on opening its first office in Melbourne, Australia, by the end of this year.
Alibaba is expanding its presence into other fields, notably teaming up with SAIC Motor to explore the connected car space. According to a CNBC report in July, the two will soon launch an SUV powered by Alibaba’s operating system, YunOS. Furthermore, Alibaba is investing in e-sports through its new partnership with the International e-Sports Federation, and plans to build a number of stadiums in China for e-Sports events.
Alibaba is also putting more money into its cloud services and payment platform, Alipay, which face competition from Tencent and other smaller companies.
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 Autobytel Inc. , PetMed Express, Inc. (PETS - Free Report) and Stamps.com Inc. , all carrying a Zacks Rank #1 (Strong Buy).
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Alibaba (BABA) Beats Q1 Earnings & Revenue Estimates
Alibaba Group Holding Limited (BABA - Free Report) reported first-quarter fiscal 2017 (ended Jun 30, 2016) earnings of 52 cents per share, exceeding 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 gained 5.1%. The solid growth in Alibaba’s China retail and mobile business as well as strength across most of the core operating metrics remained impressive.
Revenues
Alibaba reported revenues of RMB32.15 billion (US$4.8 billion), up 33.0% sequentially and 58.8% year over year. Also, revenues surpassed the Zacks Consensus Estimate of $4.61 billion. The increase was driven by the continued revenue growth in China commerce retail business and the consolidation of newly acquired businesses (namely Youku Tudou and Lazada).
Revenue By Segments
Beginning from the first quarter fiscal 2017, Alibaba has commenced segment reporting. It will have four reportable segments — Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives. The details of these segments have been discussed below:
Core Commerce — The segment comprises marketplaces operating in retail and wholesale commerce in China, and international commerce. Revenues in the quarter was RMB27.2 billion (US$4.1 billion), up 47% year over year.
· China commerce Retail business (73% of total first quarter revenue) – This business vertical’s revenue in the quarter was RMB23.4 billion (US$3.5 billion), up 49% year over year. The increase was driven by robust growth of online marketing service revenue.
· China commerce wholesale business – This business revenue in the quarter was RMB1.26 billion (US$190 million), up 26% year over year. The growth was due to an increase in the average revenue from paying members.
· International commerce retail business – This business revenue in the quarter was RMB1.1 billion (US$168 million), up 123% year over year. The increase was driven by the consolidation of Lazada in mid-Apr 2016 and growth in revenue generated from AliExpress.
· International commerce wholesale business – This business revenue in the quarter was RMB1.4 billion (US$216 million), up 15% year over year. The increase was due to growth in revenue generated by the import/export related value-added services.
Cloud computing — This segment comprises Alibaba Cloud, offering a complete suite of cloud services. Revenues in the quarter were RMB1.24 billion (US$187 million), up 156% year over year, driven by an increase in the number of paying customers and their spending higher than usual, reflecting increased usage of services.
Digital media and entertainment — The segment operates businesses through media properties, including UCWeb, Youku Tudou, OTT TV service, Alibaba Music and Alibaba Sports. Revenues were RMB3.14 billion (US$472 million), up 286% year over year. The increase was due to the consolidation of Youku Tudou and, also, an increase in revenue from mobile value-added services provided by UCWeb, such as mobile search, news feeds 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 was RMB535 million (US$80 million), up 30% year over year. The revenue increase was driven by higher fees collected from Ant Financial (in relation to the SME loan business transferred to Ant Financial) and in YunOS revenue.
Key Metrics
Gross Merchandise Value (GMV) — Total China retail marketplaces GMV came in at RMB837.0 billion (US$126.0 billion), up 24% year over year. Taobao Marketplace GMV increased 19% from the year-ago period to RMB508.0 billion (US$76.0 billion) and Tmall GMV of RMB329.0 billion (US$50.0 billion) rose 34%. The increase in GMV was driven by an increase in the count of active buyers.
Mobile Monthly Active Users – Mobile MAUs grew to 427 million, improving 39% year over year, as adoption of mobile devices by consumers grew as the primary method of accessing Alibaba’s platforms.
Annual Active Buyers – China retail marketplaces had 434 million annual active buyers in the 12-month period ended June, 2016, representing 18% year-over-year growth.
Margins
Pro-forma gross margin was 63.5%, up 301 basis points (bps) sequentially but down 338 bps year over year.
Alibaba’s adjusted operating expenses of RMB9.14 billion increased 19.1% sequentially. Pro-forma operating margin was 35.0%, up both sequentially as well as year over year.
Net Income
On a GAAP basis, Alibabagenerated net income of RMB7.6 billion(US$1.14 million) compared with RMB30.8 billionin the year-ago period.
Alibaba-generated adjusted net earnings were 52 cents compared with 34 cents in first-quarter fiscal 2016. 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 falling cash and cash equivalents and short-term investments of approximately RMB89.4 billion against the higher RMB111.5 billion in the prior quarter.
Current bank borrowings were negligibly higher at RMB4.7 billion against RMB4.3 billion in the last quarter. Long-term bank borrowings were spectacularly higher at RMB21.7 billion compared with RMB1.9 billion in the previous quarter.
Cash flow from operations was a big jump to RMB15.0 billion (US$2.3 billion) compared with the not-so-significant RMB5.08 billion (US$788 million) in the prior quarter. Capex was a big sum of RMB2.79 billion against the miniscule RMB0.68 billion in the last quarter.
In the June quarter, Alibaba repurchased US$2.0 billion of shares, and the partners of Alibaba Partnership purchased US$400 million of the company’s shares, in a transaction with SoftBank.
ALIBABA GROUP Price, Consensus and EPS Surprise
ALIBABA GROUP Price, Consensus and EPS Surprise | ALIBABA GROUP Quote
Our Take
The Chinese e-Commerce goliath caters mainly to its nativemarket. The company, which operates as a platform for third-party sellers,neither sells goods directly to merchants nor holds inventory.
Alibaba reported decent fiscal first-quarter results with both the top line as well as bottom line surpassing the Zacks Consensus Estimate. Apart from the fact that the company recorded strong numbers across most of its metrics, it’s also pertinent that,in terms of gross merchandise volume (GMV), Alibaba is China’s largest e-commerce company. Given such promise, it has still come under some controversy around the listing of fake items on the company’s services, but claims to be working towards addressing the issue.
Although China’s economic growth rate has slowed, the company was able to report improving revenues and GMV this quarter. Even so, Alibaba expects to hit $1 trillion in GMV by 2020 and reach 2 billion customers in the process.
Recently, Alibaba has been working extensively to expand its international presence. As part of this initiative, it plans on opening its first office in Melbourne, Australia, by the end of this year.
Alibaba is expanding its presence into other fields, notably teaming up with SAIC Motor to explore the connected car space. According to a CNBC report in July, the two will soon launch an SUV powered by Alibaba’s operating system, YunOS. Furthermore, Alibaba is investing in e-sports through its new partnership with the International e-Sports Federation, and plans to build a number of stadiums in China for e-Sports events.
Alibaba is also putting more money into its cloud services and payment platform, Alipay, which face competition from Tencent and other smaller companies.
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 Autobytel Inc. , PetMed Express, Inc. (PETS - Free Report) and Stamps.com Inc. , all carrying a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>