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Alibaba (BABA) Q1 Earnings Beat Estimates, Revenues Fall Y/Y

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Alibaba Group Holding Limited BABA reported first-quarter fiscal 2023 non-GAAP earnings of $1.75 per ADS (RMB 11.73), which surpassed the Zacks Consensus Estimate by 16.7%. The figure decreased 29% year over year in RMB terms.

Revenues of RMB 205.6 billion ($30.7 billion) declined 0.1% from the year-ago quarter. Further, the top-line missed the Zacks Consensus Estimate by 1.5%.

Resurgence of COVID-19 in China remained a major headwind for the company during the reported quarter. Overall China Commerce segment delivered sluggish performance which was a negative.

Nevertheless, solid momentum across Alibaba’s China commerce and International commerce wholesale businesses was a positive.

Strength across the local consumer services, cloud computing business and Cainiao logistics services contributed well.

We note that disruptions led by coronavirus pandemic are likely to persist as concerns for Alibaba’s domestic businesses.

Alibaba Group Holding Limited Price, Consensus and EPS Surprise

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

Alibaba Group Holding Limited price-consensus-eps-surprise-chart | Alibaba Group Holding Limited Quote

Revenues by Segments

China Commerce (69% of total revenues): The segment comprises marketplaces operating in the retail and wholesale commerce markets of China. Alibaba generated RMB 141.9 billion ($21.2 billion) of revenues from the segment, which fell 1% year over year.

China commerce retail (67% of total revenues): The business vertical’s revenues for the reported quarter were RMB 136.98 billion ($20.5 billion), reflecting a year-over-year decrease of 2%. The downfall was attributed to the decline in customer management revenues due to sluggish growth in online physical goods GMV at Taobao and Tmall marketplaces.

Positive contributions from direct sales businesses like Alibaba Health and Freshippo were tailwinds.

China commerce wholesale (2% of total revenues): The business generated revenues of RMB 4.96 billion ($740 million), up 26% from the year-ago quarter’s level. The increase in value-added services’ revenues generated from wholesale buyers and paying members contributed well.

International Commerce (7% of total revenues): The segment comprises marketplaces operating in the international retail and wholesale commerce markets. Alibaba generated RMB 15.5 billion ($2.3 billion) of revenues from the segment, which grew 2% year over year.

International commerce retail (5% of total revenues): Revenues for the reported quarter were RMB 10.5 billion ($1.6 billion), down 3% year over year due to the decreasing AliExpress orders in Europe. The ongoing supply-chain and logistics disruptions due to the Russia-Ukraine conflict also remained a headwind.

Nevertheless, the well-performing Lazada contributed well to the international commerce retail revenues.  

International commerce wholesale (2% of total revenues): The business generated revenues of RMB 4.9 billion ($736 million), which increased 12% from the prior-year quarter’s level. Growth was attributed to a surge in revenues generated by cross-border-related value-added services.

Local consumer services (5% of total revenues): Revenues grossed RMB 10.6 billion ($1.6 billion), up 5% year over year.

Cainiao logistics services (6% of total revenues): The business generated revenues of RMB 12.1 billion ($1.8 billion), up 5% year over year. The upside was led by strong momentum across consumer logistics services.

Cloud Computing (9% of total revenues): The segment generated revenues of RMB 17.7 billion ($2.6 billion), up 10% from the year-ago figure, aided by solid momentum across financial services, public services and telecommunication industries.

Digital Media and Entertainment (4% of total revenues): The segment yielded revenues of RMB 7.2 billion ($1.1 billion), declining 10% on a year-over-year basis. The downfall resulted from sluggishness in Alibaba Pictures, Youku and other entertainment businesses.

Innovation Initiatives and Others (0.002% of total revenues): Revenues from the segment were RMB 479 million ($72 million), down 30% year over year.

Operating Details

In the fiscal first quarter, sales and marketing expenses were RMB 25.6 billion ($3.8 billion), down 5.4% year over year. As a percentage of total revenues, the figure contracted 100 basis points (bps) year over year to 12%.

General and administrative expenses were RMB 8.4 billion ($1.3 billion), up 17.6% from the year-ago quarter’s level. As a percentage of total revenues, the figure matched the prior-year quarter’s figure.

Product development expenses were RMB 14.2 billion ($2.1 billion), up 5% year over year. As a percentage of total revenues, the metric was in line with the year-ago reported figure.

Operating income was RMB 24.9 billion ($3.7 billion) in the reported quarter compared with RMB 30.8 billion in the prior-year quarter. The operating margin was 12% in the fiscal first quarter.

Adjusted EBITDA decreased 15% year over year to RMB 41.1 billion ($6.1 billion).

Balance Sheet & Cash Flow

As of Jun 30, 2022, cash and cash equivalents were $26.39 billion (RMB 176.7 billion), down from $29.96 billion (RMB 189.9 billion) as of Mar 31, 2021.

Short-term investments totaled $41.3 billion (RMB 276.5 billion) at the end of the first-quarter fiscal 2023, up from $40.5 billion (RMB 256.5 billion) at the end of the fourth-quarter fiscal 2022.

Alibaba generated $5.1 billion (RMB 33.9 billion) cash from operations in the reported quarter. BABA used $1.1 billion (RMB 7.04 billion) of cash in operations in the previous quarter.

BABA’s free cash flow was $3.3 billion or RMB 22.8 billion.

Zacks Rank & Stocks to Consider

Currently, Alibaba carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the retail-wholesale sector are Dollar General DG, Costco Wholesale COST and Dollar Tree DLTR, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dollar General has gained 6.4% on a year-to-date basis. The long-term earnings growth rate for the DG stock is currently projected at 12.2%.

Costco Wholesale has lost 5.2% on a year-to-date basis. The long-term earnings growth rate for the COST stock is currently projected at 9.2%.

Dollar Tree has returned 16.6% on a year-to-date basis. The long-term earnings growth rate for the DLTR stock is currently projected at 15.5%.


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