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Alibaba (BABA) Surpasses Q3 Earnings & Revenue Estimates

Zacks Equity Research

Alibaba Group Holding Limited BABA 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


Alibaba Group Holding Limited Price, Consensus and EPS Surprise

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

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. ITRI, Splunk Inc. SPLK and Agilent Technologies 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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