Alibaba Continues To Impress With Robust Growth Across Segments

by Trefis Team
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Alibaba (NYSE:BABA) announced its Q1 fiscal 2018 earnings on August 17, reporting a 56% year-over-year increase in revenues to RMB 50.2 billion ($7.4 billion). Alibaba has reported similar revenue growth in the last few years, due to strength in the core commerce businesses as well as cloud computing and digital media & entertainment segments.

We are in the process of revising our $118 price estimate for Alibaba, which is significantly lower than the current market price. Alibaba’s stock price has rallied by over 100% in the last 18 months, from under $80 in April last year to over $160 currently.

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Sustained Growth Across Divisions

Alibaba continued to impress shareholders with a sustained period of high growth across all its business segments. As shown in the table below, Alibaba’s retail e-commerce business in China was up by a massive 57% on a y-o-y basis to RMB 36.7 billion ($5.4 billion). The company demonstrated tremendous growth in this segment despite the large base factor. In the June quarter, Alibaba reported a 24% increase in mobile monthly active users (MAUs) to 529 million, while the revenue per buyer has also surged on a year-over-year basis, as shown below.

Furthermore, cloud computing revenues almost doubled to RMB 2.4 billion for the June quarter. The growth in revenues was largely due to a 75% increase in the total number of paying customers for cloud computing and internet infrastructure offerings, from 577,000 customers in June of last year to over a million customers this year. This number is expected to continue to increase in the coming years given the huge demand for internet infrastructure across China and other Asian markets.

Similarly, digital media and entertainment revenues combined were up 30% to RMB 4.1 billion, with online video streaming platform Youku Tudou largely driving revenue growth. International e-commerce revenues have been boosted by the addition of Singaporean e-commerce giant Lazada to Alibaba’s Southeast Asian operations in recent quarters. Following impressive performance from Lazada in recent quarters, Alibaba announced in June that it is investing another $1 billion in southeast Asia-based e-commerce company Lazada to take its stake up from 51% to 83%.

In terms of operating profits, Alibaba’s adjusted EBITDA grew by 68% year-over-year to RMB 25 billion for the year. As a result, Alibaba’s operating profit margin expanded by 360 basis points to over 50%, as shown in the table on top. While the margins of the loss-making divisions including cloud computing and innovation initiatives have improved, it could take a few years for all divisions to become profitable. Correspondingly, diluted earnings per share (non-GAAP) also rose in high double digits to RMB 7.95 for the quarter, as compared to RMB 4.83 in the year ago period.

Solid Outlook For Fiscal 2018

Alibaba’s management has given robust guidance for fiscal 2018, with revenues expected to increase by 45-49%. We forecast the company’s adjusted EBITDA margin to be around 60 basis points higher than prior year levels at nearly 48%. In addition, we forecast Alibaba’s non-GAAP diluted EPS for the fiscal year ended March to be almost 40% higher on a y-o-y basis to RMB 32.47, compared to a Reuters’ consensus estimate of RMB 31.51.

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