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Alibaba (BABA) Q3 Earnings Lag Estimates, Revenues Grow Y/Y

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Alibaba Group Holding LimitedBABA reported third-quarter fiscal 2018 (ended Dec 31, 2017) earnings of $1.63 per share, missing the Zacks Consensus Estimate of $1.65. However, earnings increased 26% year over year.

Alibaba reported revenues of RMB83 billion (US$12.8 billion), increasing 50.6% sequentially and 56% year over year. Also, revenues came in above the Zacks Consensus Estimate of US$12.1 billion.

The increase was driven by continued revenue growth in the China and International commerce retail business, strong improvement in Alibaba's cloud business and the consolidation of Cainiao Network.

Also, Alibaba said that it will buy 33% equity interest in Ant Financial. The deal will not involve any cash transactions. Instead, Ant Financial will end royalty payments to Alibaba.

Following third-quarter earnings, shares of the company increased 1.13% in after-hours trading. Notably, the company's shares have gained 90.9% in the last 12-months, outperforming the industry 's growth of 69.4%.

Revenues 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 - This segment comprises marketplaces operating in retail and wholesale commerce in China, and international commerce. Revenues in the quarter were RMB73.2 billion (US$11.3 billion), reflecting an increase of 57% on a year-over-year basis.

· China commerce retail business (72% of total revenues) - This business vertical's revenues in the quarter were RMB60.1 billion (US$9.3 billion), reflecting an increase of 47% year over year. The increase was driven by robust growth in the company's New Retail businesses, including consolidation of Intime and contribution from Tmall Import and Hema.

· China commerce wholesale business (2% of total revenues) - This business generated revenues of RMB1.9 billion (US$296 million), reflecting an increase of 27% year over year. The increase was due to an increase in average revenue from paying members on the company's 1688.com platform.

· International commerce retail business (6% of total revenues) - Revenues in the quarter were RMB4.7 billion (US$727 million), increasing 93% year over year. The increase was driven by robust GMV growth on these two marketplaces, Lazada and AliExpress.

· International commerce wholesale business (2% of total revenues) - This business generated revenues of RMB1.66 billion (US$256 million), increasing 7% year over year. The growth was due to an increase in online marketing revenues.

· Cainiao logistics services (5% of total revenues) - This business generated revenues of RMB3.9 billion (US$600 million). This segment represents revenues from the domestic and cross-border fulfilment services provided by Cainiao Network, after elimination of inter-company transactions.

· Others business (1% of total revenues) - This business generated revenues of RMB0.91 billion (US$140 million), reflecting an increase of 257% year over year.

Cloud Computing - This segment comprises Alibaba Cloud, offering a complete suite of cloud services. Revenues in the quarter were RMB3.6 billion (US$553 million), up 104% year over year, driven by an increase in the number of paying customers and improved revenue mix to higher valued-added services.

In the third quarter, Alibaba Cloud launched 396 new products and features to enable small and large enterprises to achieve higher computing performance and storage capability.

Digital Media and Entertainment - The segment operates businesses through media properties, which includes UCWeb, Youku Tudou, OTT TV service, Alibaba Music and Alibaba Sports. Revenues were RMB5.4 billion (US$832 million), reflecting an increase of 33% on a year-over-year basis. The growth was driven by an increase in revenues from mobile value-added services provided by UCWeb, such as news feeds and mobile search, and an increase in subscription and advertising revenues from Youku Tudou.

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 RMB772 million (US$119 million), down 9% year over year.

Key Metrics

Mobile Monthly Active Users (MAUs) - Mobile MAUs were 580 million, improving 18% year over year and 6% sequentially. This was because of an increase in adoption of mobile devices by consumers, as the primary method of accessing Alibaba's platforms.

Annual Active Buyers - China retail marketplaces had 515 million annual active buyers in the 12-month period ended Sep 30, 2017, reflecting 16% year-over-year growth and 6% sequential growth.

Operating Results

Pro forma gross margin was 57.8%, down 233 basis points (bps) sequentially and 633 bps year over year.

Alibaba's operating expenses (product development+ sales and marketing+ general and administrative) of RMB19.4 billion increased 59% year over year.

Adjusted EBITDA margin decreased to 44% from 51% in the year-ago quarter, primarily due to higher investments in New Retail and other expansion activities.

On a GAAP basis, Alibaba generated net income of RMB23.3 billion (US$3.6 million) compared with RMB17.2 billion in the year-ago period.

Balance Sheet

Alibaba exited fiscal third quarter with cash and cash equivalents and short-term investments of approximately RMB220.4 billion (US$33.9 billion) compared with RMB159.9 billion (US$24.0 billion) in the prior quarter.

Cash Flow/Share Repurchase

Cash flow from operations was RMB55.1 billion (US$8.5 billion) compared with RMB30.5 billion (US$4.59 billion) in the previous quarter. Free cash flow was RMB46.1 billion (US$7.1 billion) compared with RMB22.5 billion (US$3.38 billion) in the prior quarter.

Alibaba Group Holding Limited Price, Consensus and EPS Surprise

Alibaba Group Holding Limited Price, Consensus and EPS Surprise | Alibaba Group Holding Limited Quote

Zacks Rank and Stocks to Consider

Currently, Alibaba Group has a Zacks Rank #3 (Hold). A few better-ranked stocks in the technology sector are PetMed Express, Inc PETS and Teradyne, Inc. TER , both sporting a Zacks Rank #1 (Strong Buy), while Mercadolibre, Inc. MELI , sporting a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here .

Long-term earnings per share growth rate for PetMed, Teradyne and Mercadolibreis projected to be 12%, 12% and 25%, respectively.

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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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