First Post-IPO Earnings Report for Alibaba (BABA) Shows Confidence in Future Growth

Daniel Banas |

alibaba stock, alibaba earnings, e-commerce, chinese amazon, jack maHow big is Alibaba Group (BABA) , China’s most popular destination for online shopping? Despite already dominating the Chinese marketplace – and a recent economic slowdown in China – the company’s third quarter earnings continued to surge ahead of the competition. Alibaba’s revenue rose 53.7% year-over-year. Compare that to their competitor Amazon.com Inc.’s 20% growth over the same period and it’s pretty clear that Alibaba is a serious player in e-commerce with a lot of potential to grow in the U.S. and other major markets. The result was a 4.19% gain on the day leaving the stock trading at $106.07 at the closing bell.

Revenue Tops Expectations

This was a big moment in the history of the Chinese e-commerce giant, as it marked the first earnings report since its initial public offering in September. While the company hit expectations with earnings per share of $0.45, it beat Street estimates with revenue of $2.74 billion against consensus estimates of $2.62 billion. Overall, shares in the company have risen by about 50% since it raised nearly $21.8 billion in its IPO.

“Our business continues to perform well and our results reflect both the strength of our ecosystem and the strong foundation we have for sustainable growth,” said Jonathan Lu, chief executive officer of Alibaba Group. In China retail marketplaces, gross merchandise volume for the quarter increased 49%, while annual active buyers increased 52% year on year.

Founded in 1999, Alibaba Group consists of Alibaba.com, the world’s largest business-to-business trading platform for small business, and various other commerce and online shopping offshoots. Of these, Taobao Marketplace, China’s largest consumer-to-consumer online shopping platform, and Tmall.com, an online retail platform designed to complement Taobao are the main drivers of growth.                

Transactions on Alibaba totaled $248 billion last year – more than those of eBay and Amazon combined. Perhaps even more telling, with a current market value of nearly $250 billion, Alibaba is worth even more than Facebook, and barring any Winklevoss-like snags, the company’s future is likely to remain very bright indeed. So, if Alibaba is already such a dominant force in e-Commerce, what accounts for the company’s rising valuation?

Growth Opportunities through Mobile Apps

Similar to Zuckerberg’s strategy of world domination for Facebook (FB) when the social media giant had seemingly already taken over every personal computer, Alibaba executive vice chairman Joseph C. Tsai is looking to mobile applications to ensure long-term growth. In a news conference after the earnings announcement, Tsai pointed to a dramatic jump in the number of customers using Alibaba’s services on smartphones, and says they are “encouraged by continued improvement of mobile monetization which demonstrates the strong commercial intent of our users.”

Today, Alibaba has 29 million mobile users, which, as Tsai points out, is more than the population of Texas. Yet, before officially changing The Lone Star State’s slogan to “Don’t mess with Alibaba,” it’s worth noting that the company’s margins are weakening, and earnings growth has slowed down. Earnings before interest, taxes, depreciation and amortization contracted to 50.5% from 54.4% in the previous quarter – a slightly greater decline than expected. Further still, they reported net profit using GAAP of $494 million – a drop of 39% from the same period a year earlier.

More Growth Ahead?

Reduced growth in earnings and weakening margins aside, there’s no doubt that the story on Tuesday was one of unabashed positivity for the future of the e-commerce behemoth. It’s also easy to blame the reduced earnings on the necessary costs of integrating their newly acquired businesses as well as investments in mobile systems and marketing. “We continue to execute our focused growth strategy, and the fundamental strength of our business gives us the confidence to invest in new initiatives to add new users, improving engagement and customer experience, expand our products and services and drive long-term shareholder value,” said Maggie Wei Wu, chief financial officer of Alibaba Group.

Over the next decade, Jefferies analyst Cynthia Meng estimates that Alibaba’s customer base will grow to about half of China’s 1.3 billion population. Alibaba’s founder Jack Ma is currently the richest person in China, and if Alibaba can continue to extend their e-commerce dominance across the globe, Ma and his partners may soon find themselves breathing the most rarefied air. 

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
BABA Alibaba Group Holding Limited American Depositary 90.48 0.62 0.69 11,718,827
FB Facebook Inc. 115.40 0.30 0.26 25,070,364

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