Alibaba Group Holding Limited BABA reported non-GAAP earnings of $2.79 per ADS (RMB19.26) for the third quarter of fiscal 2023, beating Zacks’ consensus estimate by 21.8%. The figure rose 14% from the reported figure for the year-earlier quarter in RMB terms.
Revenue of RMB247.76 billion (US$35.92 billion) increased 2% from the same quarter last year. Additionally, sales topped Zacks’ consensus estimate of $35.48 billion.
The revenue increase was driven by growing momentum in Alibaba’s international trading business. The strength of local consumer services, Cainiao logistics services and cloud computing companies made a good contribution.
However, weakness in the China Commerce segment was a concern. Additionally, sluggish consumer demand along with logistics and supply chain disruptions remained a concern.
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 | Offer by Alibaba Group Holding Limited
Revenue by segment
China Commerce (69% of total revenue): The segment includes marketplaces operating in China’s retail and wholesale markets. Alibaba generated RMB169.99 billion (US$24.65 billion) in revenue from the segment, down 1% from reported figures in the year-ago quarter.
China Commerce Retail (67% of total revenue): Industry revenue was RMB165.76 billion (US$24.03 billion) in the quarter, down 1% from the reported figure for the same quarter last year. The decline was attributed to the decline in customer management revenue due to sluggish growth in GMV for online physical goods on Taobao and Tmall marketplaces. Still, positive contributions from Alibaba Health’s and Freshippo’s direct-to-consumer sales businesses, which supported direct sales and other revenue growth during the quarter, provided tailwinds.
China Commerce Wholesale (2% of total revenue): The company generated revenue of RMB4.22 billion (US$612 million), which was flat year-on-year.
International Trade (8% of total revenue): The segment includes marketplaces operating in the international retail and wholesale markets. Alibaba generated RMB19.5 billion ($2.8 billion) in revenue from this segment, up 18% from reported figures in the year-ago quarter.
International Retail (6% of Total Revenue): Revenue for the quarter was RMB14.6 billion (US$2.12 billion), up 26% from the figure reported in the year-ago quarter, reflecting strong growth of Trendyol’s e-commerce business.
International Wholesale Trade (2% of total revenue): The company generated revenue of RMB4.82 billion (US$699 million), which was flat year-on-year.
Local Consumer Services (5% of total revenue): Revenue was RMB13.12 billion (US$1.91 billion), up 6% from the figure reported in the year-ago quarter. The increase was due to improved average order value at Ele.me, which has fueled the GMV growth of the to-home business.
Cainiao Logistics Services (7% of total revenue): Revenues totaled 16.55 billion RMB (US$2.4 billion), up 27% from the number reported in the year-ago quarter. The move higher was led by strong momentum in domestic consumer logistics services.
Cloud Computing (8% of total revenue): The segment brought in 20.2 billion RMB (US$2.92 billion) in revenue, up 3% year-on-year, supported by solid momentum in in the financial services, education and automotive sectors.
Digital Media & Entertainment (3% of total revenue): Revenue was RMB7.6 billion (US$1.1 billion), down 6% from the figure reported in the year-ago quarter. This was due to inertia at Alibaba Pictures.
Innovation Initiatives and Others (0.3% of total revenue): Revenue from the segment was RMB823 million (US$119 million), down 20% from the figure reported in the year-ago quarter.
The story goes on
operational details
In the fiscal third quarter, sales and marketing expenses were RMB30.6 billion (US$4.4 billion), down 16.6% from the reported figure for the same quarter last year. As a percentage of total revenue, the figure fell 300 basis points (bps) from the reported figure for the year-ago quarter to 12%.
G&A expenses were RMB10.3 billion (US$1.5 billion), up 22% from the same quarter last year. In relation to total sales, the value corresponded to the value of the same quarter of the previous year of 4%.
Product development expenses were RMB13.5 billion (US$1.96 billion), down 13.9% from the figure reported in the same quarter last year. As a percentage of total revenue, the figure remained flat at 6% year over year.
Operating income for the quarter was RMB 35.03 billion (US$5.1 billion), a significant jump from US$7.1 billion reported in the year-ago quarter. Operating margin was 14% in the fiscal third quarter, compared to 3% in the year-ago quarter.
Adjusted EBITDA rose 15% from the reported figure for the year-ago quarter to RMB59.2 billion ($8.6 billion).
Balance Sheet & Cash Flow
As of December 31, 2022, cash and cash equivalents were US$28.3 billion (RMB195.25 billion) compared to US$29.1 billion (RMB206.7 billion) as of September 30, 2022.
Short-term investments totaled US$45.8 billion (RMB315.9 billion) at the end of the third quarter of fiscal 2023, compared to US$37.98 billion (RMB270.2 billion) at the end of the second quarter of the 2022 financial year.
Alibaba generated US$12.6 billion (RMB87.4 billion) in cash from operations in the quarter, up from US$6.6 billion (RMB47.1 billion) in the previous fiscal quarter.
BABA’s free cash flow was US$11.8 billion or RMB81.5 billion.
Zacks rank and stocks to consider
Currently, Alibaba carries a Zacks Rank #2 (Buy).
Some better ranked stocks in the retail and wholesale sectors include Ulta Beauty ULTA, Costco Wholesale COST, and Ross Stores ROST, each of which currently holds a Zacks Rank #2 (Buy). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Ulta Beauty is up 42.4% year-to-date. The long-term earnings growth rate for ULTA is currently forecast at 13.75%.
Costco Wholesale is down 1.6% year-to-date. The long-term earnings growth rate for COST is currently forecast at 9.57%.
Ross Stores is up 24.3% year-to-date. The long-term earnings growth rate for ROST is currently forecast at 10.5%.
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