Alibaba Earnings Crush Expectations

Quarterly earnings figures are out for the largest e-commerce site in the world, and they are significantly better than expected.
Chinese e-commerce giant Alibaba (NYSE: BABA) already handles more business than Amazon.com (NASDAQ: AMZN) and eBay (NASDAQ: EBAY) combined, which is why it is such a big deal to see Alibaba earnings crush expectations.
It takes very large numbers for a stock like Alibaba’s to move 7.5% in one day. Sure enough, that’s exactly what happened after the company declared quarterly earnings Thursday morning, adding $15 billion to the company’s market capitalization. That’s enough to buy the entire Campbell Soup Company (NYSE: CPB).

Despite jumping higher by 7.5% on Thursday, the stock is still down more than 17% for the year and more than 8% since its September 2014 initial public offering. The company has struggled to live up to its IPO hype, a tall order considering that Alibaba’s $25 billion IPO was the largest IPO ever.
Analysts are predicting continued cooling in Alibaba’s red hot growth, a pessimism fueled by what is illustrated in the chart below.

The earnings numbers for the fiscal quarter ending in December 2014, which were released in January, failed to live up to investor expectations, with year-over-year revenue growth of only 40% during the quarter compared to year-over-year revenue growth of 67% achieved the year before. The stock suffered its worst single trading day after the January earnings release, falling nearly 9%. Alibaba stock continued to slide more than 10% from the end of January until the most recent earnings report.
That’s why Thursday’s earnings report is so important. Strong numbers are needed to reverse investor sentiment about cooling growth. Indeed, these numbers are strong. What remains to be seen is whether these results are strong enough to reverse the downward trend we’ve seen in Alibaba stock since the all-time high of $120 reached in November 2014.
What has investors so excited about Alibaba’s latest earnings report?
Year-over-year revenue growth of 45% probably has something to do with it, especially when revenue growth from transactions conducted on mobile devices is up 352%. In fact, on just about every kind of metric you look at, the Alibaba earnings exceeded expectations.
Gross Merchandise Value (GMV), a key metric for measuring the performance of a retailer, rose 40% year-over-year. Mobile GMV rose 157%. While the number of annual “active buyers” rose 37% to 350 million active buyers, the number of monthly active users rose 77%. The metrics suggest strong growth of Alibaba’s e-commerce business and the strong growth of its customer base.
Alibaba even beat earnings expectations, reporting non-GAAP earnings per share of 48 cents, compared to consensus estimates of 43 cents a share.
Still, there are some important questions for investors to ask about Alibaba right now.
Is the stock’s lackluster performance the result of an overhyped IPO? If so, it seems reasonable to assume that the company’s results are only just catching up to the stock’s valuation and that the stock could be ready to rally higher.
Or should the market focus on the downward trend in revenue growth illustrated in the chart above?
Certainly no company can grow quarterly revenues at 75% forever. Even the lowest quarterly revenue growth figures posted by Alibaba – the 40% growth achieved during the fiscal quarters ending in March 2014 and December 2014 – would be considered huge by most companies. Nobody expects Alibaba to grow at these high rates forever.
Since Alibaba earnings crushed expectations, the stock is trading off all-time lows. This looks like an excellent time for interested buyers who previously avoided the stock due to the IPO hype to take a fresh look at the world’s titan of e-commerce.

First Apple, now this…

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