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Alibaba Group Holding Limited (BABA - Free Report) reported second-quarter fiscal 2017 (ended Sep 30, 2016) earnings of 63 cents per share, exceeding the Zacks Consensus Estimate of 47 cents. The adjusted figure excludes one-time items but includes stock-based compensation expense.
The solid growth in its core e-commerce business as well as growing cloud computing services led to the better-than-expected results.
However, Alibaba shares were down more than 2% due to higher-than-expected expenses incurred on new growth initiatives.
Revenues
Alibaba reported revenues of RMB34.29 billion (US$5.1 billion), up 6.6% sequentially and 54.7% year over year. Revenues were in line with the Zacks Consensus Estimate. The increase was driven by continued revenue growth in the China commerce retail business and the consolidation of newly acquired businesses (namely Youku Tudou and Lazada).
Revenue by Segments
Beginning from the first quarter of 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 were RMB28.5 billion (US$4.3 billion), up 41% year over year.
· China commerce retail business (70% of total revenue) – This business vertical’s revenues in the quarter were RMB24.1 billion (US$3.6 billion), up 40% year over year. The increase was driven by the robust growth of online marketing service revenue.
· China commerce wholesale business – This business generated revenues of RMB1.44 billion (US$215 million), up 37% year over year. The growth came from an increase in the average revenue from paying members.
· International commerce retail business – Revenue in the quarter was RMB1.3billion (US$201 million), up 178% year over year. The increase was driven by the consolidation of Lazada in mid-April 2016 and growth in revenue generated from AliExpress.
· International commerce wholesale business – This business generated revenues of RMB1.5 billion (US$226 million), up 11% year over year. The increase was backed by growth in revenue generated from 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 RMB1.49 billion (US$224 million), up 130% 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 RMB3.61 billion (US$541 million), up 302% year over year. The increase came from the consolidation of Youku Tudou and from an increase in revenues 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 were RMB698 million (US$104 million), up 78% year over year.
Key Metrics
Mobile Monthly Active Users — Mobile MAUs grew to 450 million, improving 30% 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 439 million annual active buyers in the 12-month period ended Sep 30, 2016, representing 14% year-over-year growth.
Margins
Pro-forma gross margin was 61.7%, down 174 basis points (bps) sequentially and 610 bps year over year.
Alibaba’s adjusted operating expenses of RMB9.5 billion increased 4.4% sequentially. Pro-forma operating margin was 33.9%, 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 RMB22.8 billion in the year-ago period.
Alibaba-generated adjusted net earnings were 63 cents compared with 38 cents in second-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 second quarter with falling cash and cash equivalents and short-term investments of approximately RMB107.6 (US$16.1 million) billion against the higher RMB89.4 billion in the prior quarter.
Current bank borrowings were negligibly higher at RMB5.5 billion against RMB4.7 billion in the last quarter. Long-term bank borrowings were spectacularly higher at RMB29.5 billion compared with RMB21.7 billion in the previous quarter.
Cash flow from operations was RMB17.2 billion (US$2.6 billion) compared with RMB15.0 billion (US$2.3 billion) in the prior quarter. Capex was RMB3.58 billion against RMB2.79 billion in the last quarter. Free cash flow was RMB13.9 billion (US$2.1 billion) compared with RMB13.6 billion in year-ago quarter.
Our Take
The Chinese e-Commerce goliath caters mainly to its native market. The company, which operates as a platform for third-party sellers, neither sells goods directly to merchants nor holds inventory.
Alibaba reported decent fiscal second-quarter results with the bottom line surpassing the Zacks Consensus Estimate and the top-line matching the same.
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. 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 faces competition from Tencent and other smaller companies.
Currently, Alibaba Group has a Zacks Rank #1 (Strong Buy). Some other well-placed stocks in the industry include Silicon Motion Technology Corp. (SIMO - Free Report) with a Zacks Rank #1, and Ambarella and Groupon, Inc. (GRPN - Free Report) with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Silicon Motion Technology Corp. delivered a positive earnings surprise of 12.85% in the trailing four quarters.
Groupon, Inc. delivered a positive earnings surprise of 31.07% in the trailing four quarters.
GigPeak, Inc. delivered a positive earnings surprise of 37.50%, on average, in the trailing four quarters.
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Alibaba (BABA) Q2 Earnings Beat Estimates, Revenues Meet
Alibaba Group Holding Limited (BABA - Free Report) reported second-quarter fiscal 2017 (ended Sep 30, 2016) earnings of 63 cents per share, exceeding the Zacks Consensus Estimate of 47 cents. The adjusted figure excludes one-time items but includes stock-based compensation expense.
The solid growth in its core e-commerce business as well as growing cloud computing services led to the better-than-expected results.
However, Alibaba shares were down more than 2% due to higher-than-expected expenses incurred on new growth initiatives.
Revenues
Alibaba reported revenues of RMB34.29 billion (US$5.1 billion), up 6.6% sequentially and 54.7% year over year. Revenues were in line with the Zacks Consensus Estimate. The increase was driven by continued revenue growth in the China commerce retail business and the consolidation of newly acquired businesses (namely Youku Tudou and Lazada).
Revenue by Segments
Beginning from the first quarter of 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 were RMB28.5 billion (US$4.3 billion), up 41% year over year.
· China commerce retail business (70% of total revenue) – This business vertical’s revenues in the quarter were RMB24.1 billion (US$3.6 billion), up 40% year over year. The increase was driven by the robust growth of online marketing service revenue.
· China commerce wholesale business – This business generated revenues of RMB1.44 billion (US$215 million), up 37% year over year. The growth came from an increase in the average revenue from paying members.
· International commerce retail business – Revenue in the quarter was RMB1.3billion (US$201 million), up 178% year over year. The increase was driven by the consolidation of Lazada in mid-April 2016 and growth in revenue generated from AliExpress.
· International commerce wholesale business – This business generated revenues of RMB1.5 billion (US$226 million), up 11% year over year. The increase was backed by growth in revenue generated from 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 RMB1.49 billion (US$224 million), up 130% 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 RMB3.61 billion (US$541 million), up 302% year over year. The increase came from the consolidation of Youku Tudou and from an increase in revenues 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 were RMB698 million (US$104 million), up 78% year over year.
Key Metrics
Mobile Monthly Active Users — Mobile MAUs grew to 450 million, improving 30% 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 439 million annual active buyers in the 12-month period ended Sep 30, 2016, representing 14% year-over-year growth.
Margins
Pro-forma gross margin was 61.7%, down 174 basis points (bps) sequentially and 610 bps year over year.
Alibaba’s adjusted operating expenses of RMB9.5 billion increased 4.4% sequentially. Pro-forma operating margin was 33.9%, 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 RMB22.8 billion in the year-ago period.
Alibaba-generated adjusted net earnings were 63 cents compared with 38 cents in second-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 second quarter with falling cash and cash equivalents and short-term investments of approximately RMB107.6 (US$16.1 million) billion against the higher RMB89.4 billion in the prior quarter.
Current bank borrowings were negligibly higher at RMB5.5 billion against RMB4.7 billion in the last quarter. Long-term bank borrowings were spectacularly higher at RMB29.5 billion compared with RMB21.7 billion in the previous quarter.
Cash flow from operations was RMB17.2 billion (US$2.6 billion) compared with RMB15.0 billion (US$2.3 billion) in the prior quarter. Capex was RMB3.58 billion against RMB2.79 billion in the last quarter. Free cash flow was RMB13.9 billion (US$2.1 billion) compared with RMB13.6 billion in year-ago quarter.
Our Take
The Chinese e-Commerce goliath caters mainly to its native market. The company, which operates as a platform for third-party sellers, neither sells goods directly to merchants nor holds inventory.
Alibaba reported decent fiscal second-quarter results with the bottom line surpassing the Zacks Consensus Estimate and the top-line matching the same.
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. 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 faces competition from Tencent and other smaller companies.
ALIBABA GROUP Price, Consensus and EPS Surprise
ALIBABA GROUP Price, Consensus and EPS Surprise | ALIBABA GROUP Quote
Currently, Alibaba Group has a Zacks Rank #1 (Strong Buy). Some other well-placed stocks in the industry include Silicon Motion Technology Corp. (SIMO - Free Report) with a Zacks Rank #1, and Ambarella and Groupon, Inc. (GRPN - Free Report) with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Silicon Motion Technology Corp. delivered a positive earnings surprise of 12.85% in the trailing four quarters.
Groupon, Inc. delivered a positive earnings surprise of 31.07% in the trailing four quarters.
GigPeak, Inc. delivered a positive earnings surprise of 37.50%, on average, in the trailing four quarters.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>