Alibaba (BABA) Q4 Earnings Beat Estimates, Revenues Rise Y/Y

Alibaba Group Holding Limited BABA reported fourth-quarter fiscal 2022 non-GAAP earnings of $1.25 per ADS (RMB 7.95), which surpassed the Zacks Consensus Estimate by 17.9%. Notably, the figure decreased 23% year over year in RMB terms.

Revenues of RMB 204.1 billion ($32.2 billion) improved 9% from the prior-year quarter. Further, the top line beat the Zacks Consensus Estimate of $30.5 billion.

Top-line growth was driven by the solid momentum across Alibaba’s China commerce and International commerce businesses.

Strength across the local consumer services, cloud computing business and Cainiao logistics services contributed well to top-line growth.

We note that the resurgence of COVID-19 in China remains a major concern for Alibaba’s domestic businesses.

Alibaba Group Holding Limited Price, Consensus and EPS Surprise

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

Revenues by Segments

China Commerce (69% of total revenues): The segment comprises marketplaces operating in the retail and wholesale commerce markets of China. The company generated RMB 140.3 billion ($22.14 billion) of revenues from the segment, which rose 8% year over year.

China commerce retail (67% of total revenues): The business vertical’s revenues for the reported quarter were RMB 135.9 billion ($21.4 billion), reflecting a year-over-year increase of 7%. Positive contributions from direct sales businesses like Tmall Supermarket and Freshippo were tailwinds.

However, sluggish growth in online physical goods GMV on Taobao and Tmall marketplaces, which constrained growth of customer management revenues, remained concerning.

China commerce wholesale (2% of total revenues): The business generated revenues of RMB 4.4 billion ($692 million), up 30% from the year-ago quarter. The increase in value-added services’ revenues generated from wholesale buyers and paying members contributed well.

International Commerce (7% of total revenues): The segment comprises marketplaces operating in the international retail and wholesale commerce markets. The company generated RMB 14.3 billion ($2.3 billion) of revenues from the segment, which grew 7% year over year.

International commerce retail (5% of total revenues): Revenues for the reported quarter were RMB 9.9 billion ($1.6 billion), increasing 4% year over year. The increase was driven by well-performing Lazada.

However, the company witnessed sluggish growth in Trendyol, which was concerning. Also, it faced decreasing AliExpress orders in Europe.

International commerce wholesale (2% of total revenues): The business generated revenues of RMB 4.45 billion ($701 million), which increased 13% from the prior-year quarter. Growth was attributed to a surge in the number of paying members on the Alibaba.com platform and revenues generated by cross-border-related value-added services.

Local consumer services (5% of total revenues): Revenues grossed RMB 10.4 billion ($1.65 billion), up 29% year over year.

Cainiao logistics services (6% of total revenues): The business generated revenues of RMB 11.6 billion ($1.83 billion), up 16% year over year. The upside was led by strong momentum across consumer logistics services.

Cloud Computing (9% of total revenues): The segment generated revenues of RMB 18.97 billion ($2.9 billion), up 12% from the year-ago figure, aided by solid momentum across financial services, retail and telecommunication industries.

However, the company witnessed weakness in the Internet industry as there was slowing demand from customers in the online entertainment and education fields.

Digital Media and Entertainment (4% of total revenues): The segment yielded revenues of RMB 8.01 billion ($1.3 billion), declining 1% on a year-over-year basis.

Innovation Initiatives and Others (0.2% of total revenues): Revenues from the segment were RMB 384 million ($60 million), down 35% year over year.

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Operating Details

In the fiscal fourth quarter, sales and marketing expenses were RMB 27.2 billion ($4.3 billion), up 8.1% year over year. As a percentage of total revenues, the figure contracted 100 basis points (bps) year over year to 13%.

General and administrative expenses were RMB 7.4 billion ($1.2 billion), significantly down from $27.7 billion reported in the year-ago quarter. The figure contracted to 4% as a percentage of revenues from 14% in the prior-year quarter.

Operating income was RMB 16.7 billion ($2.6 billion) in the reported quarter against the loss of RMB 7.7 billion in the prior-year quarter. Further, the operating margin was 8% in the fiscal fourth quarter.

Adjusted EBITDA decreased 22% year over year to RMB 23.4 billion ($3.7 billion).

Balance Sheet & Cash Flow

As of Mar 31, 2022, cash and cash equivalents were $29.96 billion (RMB 189.9 billion), down from $45.99 billion (RMB 293.1 billion) as of Dec 31, 2021.

Short-term investments totaled $40.5 billion (RMB 256.5 billion) at the end of the fiscal fourth quarter, up from $29.1 billion (RMB 185.4 billion) at the end of the fiscal third quarter.

Alibaba used $1.1 billion (RMB 7.04 billion) of cash in operations in the reported quarter against $12.6 billion (RMB 80.4 billion) of cash generated from operations in the previous quarter.

Baba’s free cash flow was ($2.4 billion) or (RMB 15.1 billion).

The company repurchased 17.8 million of its ADSs (equivalent to 142.8 million of its ordinary shares) worth $2 billion.

Zacks Rank & Stocks to Consider

Currently, Alibaba carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the retail-wholesale sector are AutoNation AN, The Kroger KR and Solo Brands DTC. While AutoNation currently sports a Zacks Rank #1 (Strong Buy), Kroger and Solo Brands carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AutoNation has returned 15% over a year. The long-term earnings growth rate for AN stock is currently projected at 24.74%.

Kroger has gained 43.7% over a year. The long-term earnings growth rate for the KR stock is currently projected at 9.88%.

Solo Brands has lost 74.1% over a year. The long-term earnings growth rate for the DTC stock is currently projected at 16.74%.

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