Markets

Alibaba (BABA) Beats Q3 Earnings and Revenue Estimates

Alibaba Group Holding LimitedBABA reported third-quarter fiscal 2016 (ended Dec 30, 2015) earnings of 73 cents per share, which exceeded the Zacks Consensus Estimate of 70 cents. The adjusted figure excludes one-time items but includes stock-based compensation expense.

The solid growth in mobile business as well as strength across most of the core operating metrics led to the better-than-expected results.

However, Alibaba shares lost 0.70% in after-hours trading due to slow growth in the total value of goods sold, known as gross merchandise volume (GMV), on Alibaba's various e-Commerce platforms.

Revenues

Alibaba reported revenues of RMB34.54 billion (US$5.3 billion), up 55.8% sequentially and 31.9% year over year, driven by strong mobile revenues. Also, revenues surpassed the Zacks Consensus Estimate of $5.08 billion.

Principal Components of Revenues

Revenues from total China commerce business were RMB29.9 billion. The retail business recorded RMB28.7 billion (US$4.4 billion) as revenues, up 35% year over year driven by growth in online marketing services revenues and commission revenues. The wholesale business revenues, on the other hand, came in at RMB1.16 million (US$179 million), up 35% year over year, supported by increase in paying members and average revenues from them.

Revenues from total International commerce business were RMB2.1 billion. Its retail business revenues were RMB632 million (US$97 million), climbing 14% year over year backed by higher GMV transacted on AliExpress. Wholesale business revenues were RMB1.43 billion (US$221 million), up 18% 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 were RMB819.0 million (US$126 million), soaring 126% year over year and contributing 3% to total revenue.

Revenues from Others were RMB1.79 million (US$277 million), down 7% from the year-ago period and accounting for 5% of total revenue. This weakness was due to the loss of revenues from the SME loan business which was transferred to Ant Financial in Feb 2015. Higher mobile Internet services revenues somewhat offset the decline.

Key Metrics

Gross Merchandise Value (GMV) - Total China retail marketplaces GMV came in at RMB964.0 billion (US$149.0 billion), up 23% year over year. Taobao Marketplace GMV increased 14% from the year-ago period to RMB563.0 billion (US$87.0 billion) and Tmall GMV of RMB401.0 billion (US$62.0 billion) rose 37%. The increase in GMV was driven by higher number of active buyers.

A nnual Active Buyers - China retail marketplaces had 407 million annual active buyers in the 12-month period ended Dec 31, 2015, representing a 22% year-over-year growth.

Mobile GMV - Mobile GMV was RMB651.0 billion (US$101.0 billion), a 99% year-over-year surge. Mobile GMV accounted for 68% of total China retail marketplaces GMV as against 62% last quarter and 42% in the previous year. 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 393 million, improving 48% year over year, driven by increased promotion of mobile apps.

Margins

Pro-forma gross margin was 68.3%, up 46 basis points (bps) sequentially but down 298 bps year over year.

Alibaba's adjusted operating expenses of RMB9.89 billion was up 54.2% from the second quarter and 16.0% from the year-ago period. Pro-forma operating margin was 39.7%, up 58.8% sequentially and 35.2% year over year.

Net Income

On a GAAP basis, Alibaba generated net income of RMB12.5 billion (US$192 million) compared with RMB5.9 billion in the year-ago period.

Alibaba generated adjusted net profit of RMB11.99 billion compared with RMB6.1 billion in second-quarter fiscal 2015. Pro-forma earnings exclude charges related to the amortization of intangible assets, gain/loss on disposals/ deemed disposals/ revaluation of investments, 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 quarter with cash and cash equivalents and short-term investments of approximately RMB118.3 billion as against RMB105.7 billion in the prior quarter.

Current bank borrowings were RMB3.0 billion as against RMB1.4 billion in the last quarter. Long-term bank borrowings were RMB1.8 billion compared with RMB2.0 billion in the earlier quarter. Unsecured senior notes were RMB51.8 billion compared with RMB50.7 billion in the second quarter.

Cash flow from operations was RMB26.2 billion (US$4.0 billion) compared with RMB15.1 billion (US$2.4 billion) in the previous quarter. Capex was RMB2.4 billion as against RMB3.2 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 strong third-quarter results with both the top line and the bottom line surpassing the respective Zacks Consensus Estimate. 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 profit. However, GMV growth was slower than expected.

Going forward, Alibaba plans to expand its operations further in rural China. The company has already reached 12,000 villages and expects to provide Internet connectivity along with purchase and delivery services in these areas. Also, the company plans to add international sellers to its platform and sell cross-border products to Chinese consumers.

Some of the current buoyancy surrounding the shares is related to Alibaba's strong dominance in the mobile search market, increasing monetization rates 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 #2 (Buy). Other well-ranked stocks in the same space are eBay Inc. EBAY , Mercadolibre, Inc. MELI and Amazon.com Inc. AMZN . While eBay and Mercadolibre sport a Zacks Rank #1 (Strong Buy), Amazon carries the same Zacks Rank as Alibaba.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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