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Alibaba earnings have analysts cheering ‘V-shaped recovery’ but stock falls

Earnings Results

Alibaba’s investment losses are narrowing, company says to expect further spending on growth areas


Gilles Sabrie/Bloomberg

Alibaba Group Holding Ltd. said that most of its businesses are now back to “healthy growth” as China recovers from the COVID-19 crisis.

The Chinese e-commerce giant topped revenue and earnings expectations with its fiscal first-quarter report early Thursday, though its shares were off 1.6% in afternoon trading.

“The dynamics have fundamentally altered our macroeconomic environment and everyday life, but it has also introduced new opportunities,” Chief Executive Daniel Zhong said of the pandemic. Alibaba’s
BABA,
-1.00%

Tmall marketplace saw 27% gross merchandise volume growth for online purchases of digital goods, “with all major categories growing at a similar or faster rates relative to December 2019 quarter.”

Alibaba saw “higher purchase frequency as well as higher average spending per customer across all city tiers,” according to Zhong, who cited progress in picking up new users in less developed parts of China. The company had 742 million annual active customers on its China retail marketplaces as of the June quarter, which marked an increase of 16 million from the March quarter.

Read: Beyond Meat partners with Alibaba for new China push

This was one “very encouraging” sign from the report, said Hari Srinivasan, a senior research analyst at Neuberger Berman. In the past, a lot of the growth in e-commerce has come from more developed coastal cities, he told MarketWatch, but the COVID-19 crisis has prompted more inland users to try e-commerce or expand what they choose to purchase online.

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Alibaba generated RMB153.75 billion ($21.76 billion) in revenue, up from RMB114.92 billion a year earlier and ahead of the RMB148 billion FactSet consensus. The company earned an adjusted RMB14.82 per American depositary share, up from RMB12.55 a year prior. Analysts surveyed by FactSet had expected RMB13.82.

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The company is still investing is growth areas of the business, but Srinivasan saw signs that the investments are scaling well. “The engine of profit growth is the e-commerce business,” he said, and while investment areas like international expansion and cloud computing are a drag on margin growth, “e-commerce is delivering good growth and the losses from new investments are going down.”

Loop Capital analyst Rob Sanderson also highlighted the narrowing losses from Alibaba’s investment areas and wrote that in general, “bulls will highlight the quick, V-shaped recovery for China online retailers, led by Alibaba.” Still, he said “bears will point to repeated commentary by management in the call and sell-side follow up to expect more aggressive investment spending through the year.”

He rates the stock a buy with a $280 price target.

RBC Capital Markets analyst Mark Mahaney also discussed the V-shaped recovery for Alibaba, writing that the company looks to be a structural winner coming out of COVID-19 just like Amazon.com Inc.
AMZN,
+1.13%

is in the U.S., though Amazon’s boost may be more pronounced since the U.S. was behind China in terms of e-commerce adoption before the pandemic began.

He has an outperform rating on the stock and raised his price target to $300 from $235.

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Alibaba shares have gained 18% over the past three months as the S&P 500
SPX,
+0.31%

has risen 14% and as the KraneShares CSI China Internet ETF
KWEB,
+0.70%

has added 29%.

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