Alibaba Falls 3% As Revenue Dips Below Street Estimates

Shares in Chinese e-commerce giant Alibaba (BABA) are falling 3% in Thursday’s pre-market trading after BABA reported mixed earning results for the fiscal second quarter.

Specifically, Q2 Non-GAAP EPS of $2.65 beat Street estimates by $0.58 while GAAP EPS of $1.54 also topped expectations by $0.06. However, revenue of $22.8B fell short of consensus by $510M, despite surging 30% year-over-year.

BABA’s revenue consisted of: Core commerce at RMB130.92B (missing the Street consensus of RMB132.21B); Cloud Computing at RMB14.90B (vs Street at RMB14.43B); Digital Media and Entertainment at RMB8.07B (vs Street’s RMB7.84B); and Innovation Initiatives and Others at RMB1.17B (vs consensus of RMB1.14B).

Meanwhile, BABA reported that monthly active users (MAUs) on its China retail marketplaces reached 881M in September 2020, up 7M from June 2020. Annual active consumers on its China retail marketplaces reached 757M million, an increase of 15M year-on-year.

“We delivered another solid quarter, with revenue growth of 30% year-over-year and adjusted EBITDA up 28% year-over-year,” said Maggie Wu, Alibaba’s CFO.

“Our domestic core commerce business continued to grow steadily during the post-COVID-19 environment in China through higher purchase frequency and consumer spending, while cloud computing revenue grew 60% year-over-year, driven by the acceleration in digitalization across all industries and businesses of all sizes in China” she added.

Net cash provided by operating activities was $7,997M and non-GAAP free cash flow was $5,971M.

Earlier this week BABA plunged 8% after the Shanghai Stock Exchange disqualified Ant Group’s listing, citing a “changing regulatory environment” as the reason behind the rejection. Alibaba holds 33% direct equity ownership in Ant.

On Monday, government officials and representatives of the People’s Bank of China called in Ant Group’s and Alibaba’s co-founder Jack Ma for a meeting, to discuss their views on “the health and stability of the financial sector.” As a result, the simultaneous listing on The Hong Kong Stock Exchange has also been put on hold.

In reaction to the news, Truist analyst Youssef Squali said, “This IPO has been anticipated for years, and recent investors’ excitement around it helped drive BABA shares higher, in our view. With BABA shares selling off today, we should note that this development has no direct bearing on BABA’s operations.”

Along with making the most from the “digitization of the Chinese public and private sector economy,” Squali believes China’s post pandemic recovery will “continue to have a positive impact” and expects the company to “grow the top line at an average of ~28% per year for the next 3 years.” Overall, Squali sticks to his Buy rating alongside a $308 price target.

Indeed, all 22 other analysts who have posted a recent BABA review rate the stock a Buy. The average price target stands at $335.9 and implies possible upside of ~14% over the next months. (See BABA stock analysis on TipRanks)