Investors who have waited for Alibaba Group Holding Ltd (NYSE: BABA ) to cool off before buying now have their chance. BABA stock is taking a beating in Thursday's premarket session on a fiscal fourth-quarter miss, but Wall Street is missing the fact that it was a largely solid report.
Shares of Alibaba were down by more than 5% at one point after the Chinese e-commerce giant reported mixed Q4 results. Despite an almost 60% year-over-year jump on the top line, the 2-cent miss on the bottom line heightened fears that Alibaba's capital expenses are running ahead of estimates.
But there's tons of growth opportunities in the quarters ahead. And it's also worth mentioning that Alibaba just announced a two-year stock buyback program valued at close to $6 billion.
With some patience, BABA stock can still reach $130 in the next 12 months, delivering gains of almost 15%.
For now, let's go through the numbers.
Alibaba Q4 Earnings
In the three months that ended March, Alibaba reported reported a profit of 10.65 billion yuan, or 60 cents per share, up from 5.37 billion yuan in the year-earlier quarter. For some context, the 60 cents per share nearly doubled to the U.S. dollar equivalent of $1.55 billion. Still, adjusted EPS of 63 cents missed Street forecast by 2 cents.
Fourth-quarter revenue surged 60% year-over-year to $5.61 billion, topping consensus estimates of $5.24 billion. BABA continues to benefit from a combination of its core e-commerce business, which rose 47% to $4.59 billion, and its cloud computing business, which doubled to $314 million. Notably, the 47% rise in its core e-commerce business unit topped last year's growth rate of 45% rise, suggesting - in the areas that it matters the most - revenue continues to accelerate.
Elsewhere, its digital media and entertainment segment revenue more than tripled to $571 million.
For the year, Alibaba's 2017 gross merchandise volume (GMV) on China retail marketplaces grew 22% to $547 billion, with mobile GMV rising 49% to $433 billion, or 79% of total GMV.
From my vantage point, there were no weaknesses during the quarter - something CEO Daniel Zhang reminded investors of:
"Alibaba Group had another outstanding quarter and fiscal year, demonstrating our ability to successfully engage and monetize the half a billion consumers across our platforms," Zhang said in a statement. "Our core commerce segment continued its significant growth and strong cash flow at large scale, enabling our aggressive investment in cloud computing, digital media and entertainment to drive the digital transformation of the economy and high-quality consumption across China."
Reasons to Love BABA Stock
So why is Alibaba pulling back?
The fact that the shares have risen 37% year-to-date, crushing the 7% rise in the S&P 500 index, could be one reason . The stock had a huge run into the quarter and was trading at all-time highs.
Still, not only has BABA become the Amazon.com, Inc. (NASDAQ: AMZN ) of the far east, it is now competing with both AMZN and Microsoft Corporation (NASDAQ: MSFT ) in fast-growing areas such as the cloud. Those guys aren't alone anymore.
Alibaba's cloud platform Alicloud, which continues to post triple-digit percentage revenue growth, has become a force. Yet, analysts have yet to take Alicloud seriously, given that it accounts for only about 5% of Alibaba's total revenue. But with the company looking to expand Alicloud beyond China, revenue growth will accelerate.
With BABA stock priced at just 27 times fiscal 2018 estimates - versus 83 for AMZN - Alibaba is still the cheapest way to play e-commerce and cloud growth.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
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