What to Know About Alibaba earnings and outlook
Alibaba (BABA) posted its first operating loss as a public company in its fiscal fourth quarter ended March 31, but revenue beat expectations. The losses are attributed to its failed Ant IPO and the massive antitrust fine it received from the Chinese government last month. Chinese regulators have launched an offensive against tech companies and fears over policy tightening and lofty valuations have pummeled many China technology stocks. Adding to the pressure are worries over Sino-U.S. trade relations.
Alibaba Earnings
Alibaba Group Holding Limited (BABA), the Chinese e-commerce and internet services giant, reported mixed financial results for its Q4 FY 2021, ended March 31. The company reported adjusted earnings of $1.58 a share on revenue of $28.6 billion. Analysts expected Alibaba to report earnings of $1.79 on revenue of $27.8 billion for the period ended March 31.
Commerce driving revenue
Alibaba’s core commerce business was behind the revenue surge, bringing in 161.36 billion yuan, a 72% year-on-year rise as shoppers continue to flock online. Alibaba saw 101% year-on-year growth in its logistics business Cainiao, while some of its other initiatives such as supermarket Freshippo also contributed to strong growth.
The cloud computing division, which became profitable for the first time in the December quarter, remained profitable. Its revenue grew 37% year-on-year to 16.76 billion yuan.
China’s e-commerce market is fierce with Alibaba battling the likes of JD.com and Pinduoduo, all of which are looking to differentiate by investing in new businesses. Analysts expected pressure on profits due to higher spending on growth initiatives. That’s especially in lower-tier cities and in segments with lower online penetration. One such area is Taobao Live, the live streaming shopping feature on Alibaba’s Taobao e-commerce site. Taobao Live’s gross merchandise value, a measure of how much was transacted across the platform, reached over 500 billion yuan in the 2021 fiscal year.
Maggie Wu, the chief financial officer of Alibaba, said the company will use its “incremental profits and additional capital in the fiscal year 2022 to support our merchants and invest into new businesses and key strategic areas that will help us increase consumer wallet share and penetrate new addressable markets.”
Alibaba’s Annual Active Consumers in China
Alibaba is the largest e-commerce company in China in terms of gross merchandise volume. It also operates a fast-growing cloud computing unit. Other business units include digital media, entertainment, retail operations, and grocery business.
Alibaba reported 1 billion annual active consumers, or “active buyers” for the 12 months ended March 31, 2021, including 811 million from China and 240 million customers outside China. This figure also beat analyst predictions and constituted growth of around 32 million active buyers on a sequential basis. This represents YOY growth of around 11.7% for this key metric, the strongest quarterly performance in more than a year.
“Our overall business delivered strong growth on a healthy foundation, with the Alibaba Ecosystem generating a record $1.2 trillion in gross merchandise volume during this fiscal year,” said Chief Executive Daniel Zhang, in written remarks with the Alibaba earnings release.
Regulatory Troubles Pressure Alibaba Earnings
China has been expanding its crackdown on the domestic technology sector. Fears over policy tightening and lofty valuations have pummeled many China technology stocks. Adding to the pressure are worries over Sino-U.S. trade relations. Last month, the market regulator opened an investigation into “suspected monopolistic practices” of food delivery giant Meituan, a company that Alibaba’s Ele.me competes with.
Alibaba is optimistic the latest results might draw a line under the company’s recent troubles with regulators, which began when the $34.5 billion initial public offerings of Ant Group, its financial technology affiliate, was pulled in November. Shanghai and Hong Kong exchange officials suspended the initial public offering due to the company’s inability to fulfill conditions amid changes in the regulatory environment.
Since then, over $240 billion of value has been wiped off of Alibaba’s stock as regulatory scrutiny continued, including the massive 18.23 billion yuan ($2.8 billion) fine it received as a result of an anti-monopoly investigation. Alibaba said its loss from operations was 7.66 billion yuan as a result of the fine. It is the first time Alibaba has reported an operating loss as a public company, CEO Daniel Zhang said Thursday. But excluding that, its income from operations would have been 10.56 billion yuan, a 48% year-on-year rise.
Alibaba’s Outlook and Stock Performance
In its letter to shareholders, Alibaba predicted significant growth in annual revenue for FY 2022. The company expects to generate more than RMB930 billion for the year, far ahead of FY 2021’s figure of RMB717.2 billion.
Alibaba stock sank 6.3%, closing at 206.08 on Thursday following the company’s earnings release. Shares of Alibaba stock have been on a downtrend since November, even though it continues to deliver strong earnings and sales growth. In the past year, the company’s stock has significantly underperformed the broader market, providing one-year trailing total returns of 9.8% as compared with 41.6% for the S&P 500.
Should I buy Alibaba stock?
The current consensus among 50 polled investment analysts is to buy stock in Alibaba Group Holding Ltd. The 48 analysts offering 12-month price forecasts for Alibaba Group Holding Ltd have a median target of 302.88, with a high estimate of 356.54 and a low estimate of 260.10. The median estimate represents a +45.46% increase from the last price of 208.23, according to CNN Business.
Analysts expect that Alibaba will report earnings of $11.13 per share in the next year so the stock is trading at about 19 forward P/E. While this valuation looks rather cheap for the current market environment, it remains to be seen whether traders will be ready to buy more shares of Alibaba without an additional discount for the company’s problems in China which have put pressure on the stock since November 2020.