Alibaba (BABA) Beats Earnings And Revenue Estimates In Q4

Alibaba Group Holding Limited (NYSE:BABA) reported fourth-quarter fiscal 2018 (ended Mar 31, 2018) earnings of 91 cents per share, surpassing the Zacks Consensus Estimate by 3 cents. Also, earnings increased 44.4% year over year.

Alibaba reported revenues of RMB61.9 billion (US$9.87 billion), down 25.4% sequentially but up 61% from the prior-year quarter. Also, revenues came in above the Zacks Consensus Estimate of US$9.18 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.

Following fourth-quarter earnings, shares of the company have increased 3.53%. Also, the company's shares have gained 61.6% in the past 12 months, outperforming the industry’s growth of 48.5%.

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 RMB51.3 billion (US$8.2 billion), reflecting an increase of 62% on a year-over-year basis.

· China commerce retail business (65% of the total revenues)— This business vertical’s revenues in the quarter were RMB40.2 billion (US$6.4 billion), reflecting an increase of 56% 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(3% of the total revenues)— This business generated revenues of RMB1.9 billion (US$300 million), reflecting an increase of 28% from the year-ago quarter. The increase was due to a rise in the average revenues from paying members on the company’s 1688.com platform.

· International commerce retail business(6% of the total revenues)— Revenues in the quarter were RMB4 billion (US$632 million), increasing 63% year over year. The increase was driven by robust GMV growth on these two marketplaces, Lazada and AliExpress.

· International commerce wholesale business(3% of the total revenues)— This business generated revenues of RMB1.7 billion (US$271 million), increasing 13% from the prior-year quarter. The growth was due to an increase in online marketing revenues.

· Cainiao logistics services (5% of the total revenues)— This business generated revenues of RMB2.9 billion (US$455 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 the total revenues)— This business generated revenues of RMB0.701 billion (US$112 million), reflecting an increase of 101% year over year.

Cloud Computing: This segment comprises Alibaba Cloud that offers a complete suite of cloud services. Revenues in the quarter were RMB4.4 billion (US$699 million), up 103% from the year-ago quarter, driven by an increase in the number of paying customers and improved revenue mix to higher valued-added services.

In the fourth quarter, Alibaba Cloud launched 316 new products and features. Most of these products were focused on artificial intelligence, data management and security.

Digital Media and Entertainment: The segment operates businesses through media properties that include UCWeb, Youku Tudou, OTT TV service, Alibaba Music and Alibaba Sports. Revenues were RMB5.3 billion (US$840 million), reflecting an increase of 34% 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 RMB988 million (US$158 million), up 8% year over year.

Key Metrics

Mobile Monthly Active Users (MAUs) — Mobile MAUs were 617 million, improving 22% from the prior-year quarter and 7% sequentially. This was because of an increase in the adoption of mobile devices by consumers, as the primary method of accessing Alibaba’s platforms.

Annual Active Buyers— China retail marketplaces had 552 million annual active buyers in the 12-month period ended Dec 31, 2017, reflecting 22% year-over-year growth and 7% sequential improvement.

Operating Results

Pro-forma gross margin was 47.5%, down 1,026 basis points (bps) sequentially and 1,236 bps year over year.

Alibaba’s operating expenses (product development+ sales and marketing+ general and administrative) of RMB18.9 billion increased 54.2% from a year ago.

Adjusted EBITDA margin decreased to 31% from 43% in the year-ago quarter, primarily due to higher investments in New Retail and other expansion activities.

Balance Sheet

Alibaba exited fiscal fourth quarter with cash and cash equivalents, and short-term investments of approximately RMB205.4 billion (US$32.7 billion) compared with RMB220.4 billion (US$33.9 billion) in the prior quarter.

Cash Flow/Share Repurchase

Net cash flow from operations was RMB14.2 billion (US$2.3 billion) while free cash flow was RMB8.6 billion (US$1.4 billion) in the fiscal fourth quarter.

Zacks Rank and Stocks to Consider

Currently, Alibaba Group has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the technology sector are Littelfuse, Inc. (NASDAQ:LFUS) , sporting a Zacks Rank #1 (Strong Buy), while Etsy, Inc. (NASDAQ:ETSY) and SMC Corporation (OTC:SMCAY) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings per share growth rate for Littelfuse, Etsy and SMC Corporation is projected at 12%, 18% and 13.7%, respectively

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