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Alibaba (BABA) Misses Q4 Earnings Estimate, Beats Revenue

Zacks

Alibaba Group Holding Limited BABA reported fourth-quarter fiscal 2017 (ended Mar 31, 2017) earnings of 39 cents per share, missing the Zacks Consensus Estimate of 47 cents. The adjusted figure excludes one-time items but includes stock-based compensation expense.

The earnings were impacted by a higher tax bill. Also, increasing costs associated with new businesses initiatives, rising logistics and order-fulfillment costs weighed on the results.

Despite weaker-than-expected earnings, Alibaba’s shares increased 0.16% in the after-hours trading, driven by solid growth in the company’s core e-commerce business and growing cloud computing services.

Also, in the last one year, Alibaba outperformed the Zacks Electronic Commerce industry. Its shares returned 54.8% compared with the industry’s gain of 44.2%.


Revenues

Alibaba reported revenues of RMB38.58 billion (US$5.61 billion), down 27.5% sequentially but up 59.5% year over year. Also, revenues were above the Zacks Consensus Estimate of US$5.17 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 RMB31.57 billion (US$4.6 billion), up 47% year over year.

· China commerce retail business (67% of total revenue)This business vertical’s revenues in the quarter were RMB25.8 billion (US$3.8 billion), reflecting an increase of 41% year over year. The increase was driven by robust growth in online marketing service revenues.

· China commerce wholesale business (4% of total revenue)– This business generated revenues of RMB1.5 billion (US$213 million), reflecting an increase of 36% year over year. The growth came from an increase in the average revenue from paying members.

· International commerce retail business (6% of total revenue)– Revenues in the quarter were RMB2.4 billion (US$353 million), increasing 312% 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 (4% of total revenue)– This business generated revenues of RMB1.5 billion (US$219 million), up 8% year over year. The increase was backed by growth in revenues generated from import/export related value-added services.

· Others business (1% of total revenue)– This business generated revenues of RMB0.35 billion (US$0.52 million), reflecting an increase of 640% year over year.

Cloud Computing — This segment comprises Alibaba Cloud, offering a complete suite of cloud services. Revenues in the quarter were RMB2.16 billion (US$314 million), up 103% year over year, driven by an increase in the number of paying customers and higher-than-usual spending by them, 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 RMB3.92 billion (US$571 million), up 234% 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 RMB919 million (US$133 million), up 88% year over year, driven by an increase in revenue from YunOS and AutoNavi.

Key Metrics

Mobile Monthly Active Users — Mobile MAUs were 507 million, improving 24% year over year and 3% sequentially. This was because adoption of mobile devices by consumers increased as the primary method of accessing Alibaba’s platforms.

Annual Active Buyers— China retail marketplaces had 454 million annual active buyers in the 12-month period ended Mar 31, 2017, representing 7% year-over-year growth and 2% sequential growth.

Paying Customers— The number of paying customers of the cloud-computing business was 874,000, increasing 70% year over year and 14% sequentially.

Operating Results

Pro forma gross margin was 59.8%, down 423 basis points (bps) sequentially and 61 bps year over year.

Alibaba’s adjusted operating expenses of RMB12.1 billion increased 23.3% year over year.

On a GAAP basis, Alibabagenerated net income of RMB9.9 billion(US$1.4 million) compared with RMB17.2 billion(US$2.47 million) in the year-ago period.

Alibaba generated adjusted net earnings of 39 cents compared with 20 cents in fourth-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

Alibaba exited fiscal fourth quarter with cash and cash equivalents and short-term investments of approximately RMB146.7 (US$21.3 million) billion against RMB138.5 (US$19.9 million) in the prior quarter.

Cash Flow/Share Repurchase

Cash flow from operations was RMB10.75 billion (US$1.56 billion) compared with RMB37.4 billion (US$5.4 billion) in the prior quarter. Free cash flow was RMB7.98 billion (US$1.16 billion) compared with RMB34.1 billion (US$4.9 billion) in year-ago quarter.

The company also authorized a new share repurchase program for an amount of up to US$6 billion over a period of two years. This new share-repurchase program replaces the current one.

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 nativemarket. The company, which operates as a platform for third-party sellers, neither sells goods directly to merchants nor holds inventory.

Alibaba reported decent fiscal fourth-quarter results with the top line surpassing the Zacks Consensus Estimate, while the bottom line missing the same.

Recently, Alibaba has been working extensively to expand its international presence. As part of this initiative, Alibaba consolidated its Southeast Asian retail site Lazada, which it acquired last year. This included integrating the Singapore-based platform's payment system, Hello Pay, with Alibaba's own payment affiliate, Alipay. Also, the company has been making efforts to expand its U.S. merchant base over the past quarter.

Also, Alibaba is expanding its presence in other fields, notably in the logistics space. Recently, the company announced its plans of setting up a logistics centre in Bulgaria, Xinhua for timely delivery of goods in Europe. Moreover, 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.

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). Other better-ranked stocks in the industry are KLA-Tencor KLAC, Mercadolibre, Inc. MELI and PetMed Express, Inc. PETS, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

KLA-Tencor delivered a positive earnings surprise of 11.55%, on average, in the last four quarters.

Mercadolibre, Inc. delivered a positive earnings surprise of 26.74%, on average, in the trailing four quarters.

PetMed Express, Inc. delivered a positive earnings surprise of 9.32%, on average, in the trailing four quarters.

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