Alibaba Earnings and Outlook
Alibaba shares slip after it reports slowest ever revenue growth and misses expectations. The China-based global e-commerce giant reported its slowest quarterly revenue growth since going public but beat on earnings.
Alibaba is still under the shadow of Beijing’s crackdown on Big Tech that first began in late 2020. China stocks have been hammered this past year in large part due to extensive crackdowns by Chinese government regulators. In addition to Alibaba, stocks hit hard include Baidu and Tencent Holdings. With no signs of a change of direction from Beijing, the companies may have no choice but to accept that their heydays are already behind them.
Investors should keep watching on for any clues about fresh scrutiny from Beijing, which is said to have ordered state-owned banks and firms to check their financial exposure to fintech giant Ant Group, one-third of which is owned by Alibaba.
Earnings and Revenue
The China e-commerce company reported adjusted earnings of $2.65 a share on revenue of $38.06 billion. Analysts expected Alibaba to report earnings of $2.55 a share on revenue of $38.9 billion. Revenue climbed 10% from the year-ago period, its slowest growth since becoming a public company in 2014.
In late November, Alibaba lowered its revenue growth expectations to a growth rate of 20% to 23% for fiscal year 2022. That’s down from an earlier forecast issued in May of about 30%. Alibaba blamed more sluggish consumer spending and increasing competition.
The 10% revenue growth is the slowest quarterly year-on-year growth rate for the company since its 2014 U.S. listing.
Alibaba has been facing macroeconomic headwinds in China, which have weighed on the e-commerce giant’s business. Chinese retail sales remained sluggish in the fourth quarter of the year, for example. And there is heightened competition in China’s e-commerce space.
Scrutiny on China’s tech giants continues, which is another factor weighing on the company. “Our current share price does not fairly reflect the value of the company. At current price levels, we plan on continuing our share repurchases. At the same time, we will maintain a strong cash position that gives us the financial flexibility for future investments,” said on the earnings conference call.
In the December quarter, Alibaba bought back approximately 10.1 million of its U.S.-listed American depositary shares for around $1.4 billion. Its share repurchase scheme will expire at the end of December 2022.
Should I buy Alibaba shares
The current consensus among 55 polled investment analysts is to buy stock in Alibaba Group Holding Ltd. This rating has held steady since February, when it was unchanged from a buy rating. The 49 analysts offering 12-month price forecasts for Alibaba Group Holding Ltd have a median target of 180.66, with a high estimate of 284.70 and a low estimate of 134.86. The median estimate represents a +73.16% increase from the last price of 104.33.
Analysis
Alibaba’s current share price does not fairly reflect the value of the company. The stock is down 55% this year. During its December quarter, Alibaba repurchased approximately 10.1 million of its American depositary receipts for $1.4 billion.
The company added 43 million active customers during the quarter, reaching 1.28 billion. Revenue from its cloud segment rose 20% to $3.07 billion.
Continued threat from China
Alibaba is still under the shadow of Beijing’s crackdown on Big Tech that first began in late 2020. All the guessing about Alibaba’s fate lays bares the trauma China’s crackdown has brought investors.
China stocks have been hammered this past year in large part due to extensive crackdowns by Chinese government regulators. In addition to Alibaba, stocks hit hard include Baidu and Tencent Holdings. The clampdown that began in late 2020 has hit almost every corner in the industry, causing investors to pull out of China stocks.
Without their once-blind faith in the industry, most Chinese tech giants have experienced panic selloffs that wiped billions of dollars from their market value. With no signs of a change of direction from Beijing, the companies may have no choice but to accept that their heydays are already behind them. Investors should keep watching on for any clues about fresh scrutiny from Beijing, which is said to have ordered state-owned banks and firms to check their financial exposure to fintech giant Ant Group, one-third of which is owned by Alibaba.
E-commerce in focus
Investors are watching a few key metrics, including customer management revenue, cloud computing revenue and the company’s forward guidance.
In the December quarter, Alibaba further broke down the way it reports results for different segments of its business. Instead of “core commerce,” the company now splits up its China and international retail businesses into different reporting categories. It has also broken out figures for its logistics arm, Cainiao, and local consumer service, which includes its food delivery platform ele.me. And Alibaba has started to report adjusted earnings before interest, taxes, depreciation, and amortization for each segment.
Profit for China commerce fell around 20% year-on-year to 54.47 billion yuan. Meanwhile, revenue for the company’s international commerce business grew 18% year-over-year to 16.45 billion yuan in the December quarter.
Alibaba said the percentage of customers from less-developed areas has continued to grow. The Hangzhou-headquartered company has been focused on penetrating smaller Chinese cities to find new avenues of growth. It has launched a product called Taobao Deals, which offers discounted products, to help with its aim. Alibaba said paid orders on Taobao Deals grew 100% year-on-year in the December quarter.
Cloud computing revenue for the December quarter came in at 19.54 billion yuan, up 20% year-on-year. That was slower than the 33% growth seen in the September quarter. But losses for the cloud division narrowed.
Two factors have been weighing on the cloud business results. TikTok-owner ByteDance has continued to move its overseas operations off of Alibaba’s cloud products while China’s regulatory crackdown on sectors including gaming and education — key customers for Alibaba — will also weigh on results.
But the company has continued to diversify its customer base to other industries. Revenue from noninternet industries accounted for 52% of the cloud revenue.