Alibaba (BABA) Surpasses Q3 Earnings & Revenue Estimates

Alibaba (NYSE:BABA) Group Holding Limited (NYSE:A) reported third-quarter fiscal 2020 (ended Dec 31, 2019) earnings of $2.61 per ADS, surpassing the Zacks Consensus Estimate by 16%. Also, the bottom line increased 49% year over year.

It reported revenues of RMB161.5 billion (US$23.19 billion), up 38% from the prior-year quarter. The year-over-year revenue increase was driven by strength in the company’s China commerce retail business and cloud computing.

Also, revenues surpassed the Zacks Consensus Estimate of US$22.68 billion.

Revenues by Segments

Alibaba 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. The segment’s revenues in the quarter totaled RMB141.5 billion (US$20.3 billion), reflecting an increase of 38% on a year-over-year basis.

China commerce retail business(68% of total revenues) — The business vertical’s revenues in the quarter were RMB110.5 billion (US$15.9 billion), reflecting an increase of 36% year over year.

China commerce wholesale business (2% of total revenues) — This business generated revenues of RMB3.4 billion (US$483 million), reflecting a 25% increase from the year-ago quarter. The increase was due to a rise in average revenues from paying members on 1688.com, strength in domestic wholesale marketplace and revenue growth from Lingshoutong.

International commerce retail business (5% of total revenues) — Revenues in the quarter were RMB7.4 billion (US$1.06 billion), increasing 27% year over year. The increase was driven by revenue growth from AliExpress and Lazada.

International commerce wholesale business (1% of total revenues) — This business generated revenues of RMB2.46 billion (US$353 million), increasing 13% from the prior-year quarter. The growth was due to an increase in the number of paying members on the alibaba.com platform.

Cainiao logistics services (5% of total revenues) — This business generated revenues of RMB7.5 billion (US$1.08 billion), up 67% year over year. The segment represents revenues from domestic and cross-border fulfilment services provided by Cainiao Network.

Consumer services (5% of total revenues) — This business generated revenues of RMB7.6 billion (US$1.09 billion), increasing 47% year over year.

Others business (1% of total revenues) — The business generated revenues of RMB2.7 billion (US$389 million), reflecting a 88% year-over-year increase.

Cloud Computing: This segment comprises Alibaba Cloud that offers a complete suite of cloud services. Revenues in the quarter were RMB10.7 billion (US$1.54 billion), up 62% from the year-ago quarter, driven by increased revenue contribution from both public cloud and hybrid cloud businesses.

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 from the segment were RMB7.4 billion (US$1.06 billion), reflecting an increase of 14% on a year-over-year basis. The segment’s top-line growth was driven by consolidation of Alibaba Pictures.

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 RMB1.86 billion (US$268 million), up 40% year over year, driven by an increase in revenues from Amap.

Alibaba Group Holding Limited Price, Consensus and EPS Surprise

Key Metrics

Mobile Monthly Active Users (MAUs) — Mobile MAUs were 824 million, improving 17.9% from the prior-year quarter and 5% sequentially. This improvement was caused by an increase in the adoption of mobile devices by consumers as the primary method of accessing Alibaba’s platforms.

Annual Active Consumers — China retail marketplaces had 711 million annual active buyers, reflecting 11.8% year-over-year growth and 2.6% sequential improvement.

Operating Results

Alibaba’s operating expenses (product development + sales and marketing + general and administrative) of RMB34.3 billion increased 27.7% from a year ago.

Operating margin was 25%, up 200 basis points year over year.

Adjusted EBITDA also increased 37% year over year to RMB55.9 billion (US$8.03 billion).

Cash Flow/Share Repurchase

Net cash flow from operations was RMB96.5 billion (US$13.9 billion) and free cash flow was RMB78.3 billion (US$11.2 billion) in the fiscal third quarter.

Zacks Rank & Other Key Picks

Alibaba currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the broader technology sector include Itron, Inc. (NASDAQ:ITRI) , Splunk Inc. (NASDAQ:SPLK) and Agilent Technologies (NYSE:A) , each carrying a Zacks Rank #2.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth for Itron, Splunk, and Agilent is currently projected at 25%, 31.2% and 12.5%, respectively.

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