Alibaba (BABA) stock| A Boo-Boo in BABA’s Earnings

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Alibaba Group. (NYSE: BABA)

 

Shares of the Chinese e-commerce giant, Alibaba, sharply declined to all time lows after the company report first quarter weaker than expected revenues on adjusted earning that slightly beat forecasts.  Shares of BABA traded to all time lows of $71.03 on high volume in early morning trading.

 

BABA Earnings & Outlook

 BABA reported a 28% year over year growth in revenue of $3.27 billion, however consensus was $3.38 billion.  The decrease in revenue growth was impacted by the suspension of online lottery sales by the government earlier this year, and the reduction in fees from Alibaba’s group buying and flash sales site.  Adjusted per share earnings of $0.59 did exceed analysts estimates by 1 penny.   Also, BABA did see a surge in profits of 148% to $4.97 billion ($1.92/share) mainly due to the deconsolidation of Alibaba pictures.

Other earnings highlights:

  • Annual active buyers rose 32% to 367 million buyers.
  • Sales volume increase by 34%
  • 55% of overall transactions are mobile
  • 84% share of all mobile purchases in China
  • Purchased 20% of the electronic retail giant Suning for $4.6 billion.

So why are investors selling BABA shares?  Analysts have been quick to point out the decrease in revenue growth over the past 3 years, which may suggest the Alibaba’s growth may be reaching a level of maturity.   Adding to this thesis is the announcement of a $4 billion share buyback program.  Why would one of the fastest growing companies in the world, who just raised a record $25 billion with their initial public offering less than 12 months ago, issue a large repurchase plan?

Whether Alibaba sees value in their share price or plan to use the buyback to combat a potential share plunge, revenue growth will continue to be an area of concern in future earnings.  Additionally, investors will want to see more clarity what the impact of China’s response to its slowing economy has on Alibaba’s overall growth.

 

 Alibaba’s CEO Comments

 In response to slowdown in China’s economy, Alibaba Group CEO Daniel Zhang said,

“Our company has a very clear long-term growth strategy, and we believe that this short-term movement won’t affect our long-term strategy.” CNBC.com

Technical Analysis

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BABA rebounded off all time lows of $71.03 to closed today at $73.40.  Since its November high of $120 last year BABA has declined almost 39% with 29% of the decline occurring this year.  While the next mental resistance point may be the IPO price of $68, investors looking to get back into BABA may want to keep note that some of Alibaba’s largest shareholders (Yahoo, Softbank, and top executives) will soon be free to sell their combine 1.6 billion pre-IPO shares as lockup restrictions are set to expire on September 20, 2015.

 

Alibaba Group Company Profile

Alibaba Group Holding Limited is a holding company. The Company is principally engaged in online and mobile commerce through products, services and technology. The Company provides retail and wholesale marketplaces available through both personal computer and mobile interfaces in the PRC and internationally. Retail marketplaces and services operated by the Company include the China online shopping destination (Taobao Marketplace); the China brands and retail platform (Tmall); the China group buying site that offers products by aggregating demand from consumers through limited time discounted sales (Juhuasuan), and the global consumer marketplace targeting consumers around the world (AliExpress). Wholesale marketplaces operated by the Company include the online China wholesale marketplace (1688.com) and the online business-to-business marketplace that focuses on global trade among businesses from around the world (Alibaba.com). Yahoo Finance

 

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