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Alibaba (BABA) Beats Earnings and Revenue Estimates in Q3
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Alibaba Group Holding Limited (BABA - Free Report) reported third-quarter fiscal 2017 (ended Dec 31, 2016) earnings of $1.09 per share, significantly exceeding the Zacks Consensus Estimate of 85 cents. The adjusted figure excludes one-time items but includes stock-based compensation expense.
Solid growth in its core e-commerce business and growing cloud computing services led to better-than-expected results. In response to strong earnings, Alibaba shares were up more than 3%.
Coming to the stock performance in the last one year, Alibaba has outperformed the Zacks Electronic Commerce industry. It has returned 41.15% compared with the industry’s gain of 33.05%.
Revenues
Alibaba reported revenues of RMB53.25 billion (US$7.67 billion), up 55.3% sequentially and 54.1% year over year. Also, revenues were above the Zacks Consensus Estimate of US$7.48 billion. The increase was driven by continued revenue growth in the China commerce retail business, strong growth in Alibaba’s cloud business and the consolidation of newly acquired businesses (namely Youku Tudou and Lazada).
Revenue by Segments
Starting first-quarter fiscal 2017, Alibaba commenced segment reporting. It 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 — The segment comprises marketplaces operating in retail and wholesale commerce in China, and international commerce. Revenues in the quarter were RMB46.6 billion (US$6.7 billion), up 45% year over year.
· China commerce retail business (77% of total revenue) – This business vertical’s revenues in the quarter were RMB40.8 billion (US$5.9 billion), up 42% year over year. The increase was driven by robust growth in online marketing service revenues.
· China commerce wholesale business (3% of total revenue) – This business generated revenues of RMB1.5 billion (US$218 million), up 30% year over year. The growth came from an increase in the average revenue from paying members.
· International commerce retail business (4% of total revenue) – Revenues in the quarter were RMB2.5 billion (US$353 million), up 288% year over year. The increase was driven by the consolidation of Lazada in mid-April 2016 and growth in revenues generated from AliExpress.
· International commerce wholesale business (3% of total revenue) – This business generated revenues of RMB1.6 billion (US$224 million), up 9% year over year. The increase was backed by growth in revenues 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 RMB1.76 billion (US$254 million), up 115% 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 RMB4.06 billion (US$585 million), up 273% 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 RMB845 million (US$122 million), up 61% year over year.
Key Metrics
Mobile Monthly Active Users — Mobile MAUs were 493 million, improving 25% year over year and 10% sequentially, as adoption of mobile devices by consumers increased as the primary method of accessing Alibaba’s platforms.
Annual Active Buyers — China retail marketplaces had 443 million annual active buyers in the 12-month period ended Dec 31, 2016, representing 9% year-over-year growth and 1% sequential growth.
Paying Customers — The number of paying customers of the cloud computing business was 765,000, up 100% year over year and 18% sequentially.
Margins
Pro-forma gross margin was 64.1%, up 235 basis points (bps) sequentially but down 422 bps year over year.
Alibaba’s adjusted operating expenses of RMB12.1 billion increased 23.3% year over year. Adjusted EBITDA in the quarter was RMB27.0 billion (US$3.9 billion) versus RMB19.1 billion in the year-ago quarter.
Net Income
On a GAAP basis, Alibaba generated net income of RMB17.2 billion (US$2.47 million) compared with RMB12.46 billionin the year-ago period.
Alibaba-generated adjusted net earnings were $1.09 compared with 73 cents in third-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 third quarter with cash and cash equivalents and short-term investments of approximately RMB138.5 (US$19.9 million) billion against the higher RMB107.6 billion in the prior quarter.
Cash flow from operations was RMB37.4 billion (US$5.4 billion) compared with RMB17.2 billion (US$2.6 billion) in the prior quarter. Free cash flow was RMB34.1 billion (US$4.9 billion) compared with RMB13.9 billion (US$2.1 billion) in year-ago quarter.
Outlook
For fiscal year 2017, management expects revenues to increase 53% year over year from its earlier expectations of 48%.
Alibaba Group Holding Limited Price, Consensus and EPS Surprise
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 strong fiscal third-quarter results with both the top as well as bottom line surpassing the Zacks Consensus Estimate.
Recently, Alibaba has been working extensively to expand its international presence. As part of this initiative, it launched data centers internationally.
Also, Alibaba is expanding its presence into other fields, notably in the logistics space. Recently, the company announced its plans to set up a logistics centre in Bulgaria, Xinhua for the timely delivery of goods in Europe. Furthermore, Alibaba is investing in e-sports through its partnership with the International e-Sports Federation, and plans to build a number of stadiums in China for e-Sports events.
The company also posted record sales of $17.8 billion worth of gross merchandise volume (GMV) at its annual Singles’ Day shopping event on Nov 11, which is quite encouraging. 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 #3 (Hold). Stocks worth considering in the industry include Intersil Corporation , carrying a Zacks Rank #1 (Strong Buy) and NVIDIA Corporation (NVDA - Free Report) and Itron, Inc. (ITRI - Free Report) carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Intersil Corporation delivered a positive earnings surprise of 20.42%, on average, in the trailing four quarters.
NVIDIA Corporation delivered a positive earnings surprise of 24.93%, on average, in the trailing four quarters.
Itron, Inc. delivered a positive earnings surprise of 30.55%, on average, in the past four quarters.
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Alibaba (BABA) Beats Earnings and Revenue Estimates in Q3
Alibaba Group Holding Limited (BABA - Free Report) reported third-quarter fiscal 2017 (ended Dec 31, 2016) earnings of $1.09 per share, significantly exceeding the Zacks Consensus Estimate of 85 cents. The adjusted figure excludes one-time items but includes stock-based compensation expense.
Solid growth in its core e-commerce business and growing cloud computing services led to better-than-expected results. In response to strong earnings, Alibaba shares were up more than 3%.
Coming to the stock performance in the last one year, Alibaba has outperformed the Zacks Electronic Commerce industry. It has returned 41.15% compared with the industry’s gain of 33.05%.
Revenues
Alibaba reported revenues of RMB53.25 billion (US$7.67 billion), up 55.3% sequentially and 54.1% year over year. Also, revenues were above the Zacks Consensus Estimate of US$7.48 billion. The increase was driven by continued revenue growth in the China commerce retail business, strong growth in Alibaba’s cloud business and the consolidation of newly acquired businesses (namely Youku Tudou and Lazada).
Revenue by Segments
Starting first-quarter fiscal 2017, Alibaba commenced segment reporting. It 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 — The segment comprises marketplaces operating in retail and wholesale commerce in China, and international commerce. Revenues in the quarter were RMB46.6 billion (US$6.7 billion), up 45% year over year.
· China commerce retail business (77% of total revenue) – This business vertical’s revenues in the quarter were RMB40.8 billion (US$5.9 billion), up 42% year over year. The increase was driven by robust growth in online marketing service revenues.
· China commerce wholesale business (3% of total revenue) – This business generated revenues of RMB1.5 billion (US$218 million), up 30% year over year. The growth came from an increase in the average revenue from paying members.
· International commerce retail business (4% of total revenue) – Revenues in the quarter were RMB2.5 billion (US$353 million), up 288% year over year. The increase was driven by the consolidation of Lazada in mid-April 2016 and growth in revenues generated from AliExpress.
· International commerce wholesale business (3% of total revenue) – This business generated revenues of RMB1.6 billion (US$224 million), up 9% year over year. The increase was backed by growth in revenues 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 RMB1.76 billion (US$254 million), up 115% 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 RMB4.06 billion (US$585 million), up 273% 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 RMB845 million (US$122 million), up 61% year over year.
Key Metrics
Mobile Monthly Active Users — Mobile MAUs were 493 million, improving 25% year over year and 10% sequentially, as adoption of mobile devices by consumers increased as the primary method of accessing Alibaba’s platforms.
Annual Active Buyers — China retail marketplaces had 443 million annual active buyers in the 12-month period ended Dec 31, 2016, representing 9% year-over-year growth and 1% sequential growth.
Paying Customers — The number of paying customers of the cloud computing business was 765,000, up 100% year over year and 18% sequentially.
Margins
Pro-forma gross margin was 64.1%, up 235 basis points (bps) sequentially but down 422 bps year over year.
Alibaba’s adjusted operating expenses of RMB12.1 billion increased 23.3% year over year. Adjusted EBITDA in the quarter was RMB27.0 billion (US$3.9 billion) versus RMB19.1 billion in the year-ago quarter.
Net Income
On a GAAP basis, Alibaba generated net income of RMB17.2 billion (US$2.47 million) compared with RMB12.46 billionin the year-ago period.
Alibaba-generated adjusted net earnings were $1.09 compared with 73 cents in third-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 third quarter with cash and cash equivalents and short-term investments of approximately RMB138.5 (US$19.9 million) billion against the higher RMB107.6 billion in the prior quarter.
Cash flow from operations was RMB37.4 billion (US$5.4 billion) compared with RMB17.2 billion (US$2.6 billion) in the prior quarter. Free cash flow was RMB34.1 billion (US$4.9 billion) compared with RMB13.9 billion (US$2.1 billion) in year-ago quarter.
Outlook
For fiscal year 2017, management expects revenues to increase 53% year over year from its earlier expectations of 48%.
Alibaba Group Holding Limited Price, Consensus and EPS Surprise
Alibaba Group Holding Limited Price, Consensus and EPS Surprise | Alibaba Group Holding Limited Quote
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 strong fiscal third-quarter results with both the top as well as bottom line surpassing the Zacks Consensus Estimate.
Recently, Alibaba has been working extensively to expand its international presence. As part of this initiative, it launched data centers internationally.
Also, Alibaba is expanding its presence into other fields, notably in the logistics space. Recently, the company announced its plans to set up a logistics centre in Bulgaria, Xinhua for the timely delivery of goods in Europe. Furthermore, Alibaba is investing in e-sports through its partnership with the International e-Sports Federation, and plans to build a number of stadiums in China for e-Sports events.
The company also posted record sales of $17.8 billion worth of gross merchandise volume (GMV) at its annual Singles’ Day shopping event on Nov 11, which is quite encouraging. 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 #3 (Hold). Stocks worth considering in the industry include Intersil Corporation , carrying a Zacks Rank #1 (Strong Buy) and NVIDIA Corporation (NVDA - Free Report) and Itron, Inc. (ITRI - Free Report) carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Intersil Corporation delivered a positive earnings surprise of 20.42%, on average, in the trailing four quarters.
NVIDIA Corporation delivered a positive earnings surprise of 24.93%, on average, in the trailing four quarters.
Itron, Inc. delivered a positive earnings surprise of 30.55%, on average, in the past four quarters.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>