Market News & Analysis
Alibaba sales surge shrugged off
Ken Odeluga November 1, 2019 7:46 PM
Alibaba’s strong quarterly story left investors cold, raising the bar for upcoming Baidu and Tencent earnings
Alibaba earnings surprised at top and bottom lines, apparently paving the way for a potentially pleasing run of earnings from the giant Chinese technology firms that will report earnings in coming days, but the shares have barely risen on Friday after the group’s quarterly report.
Here are some of the key financial details
Revenue CNY119.02bn vs. CNY116.69bn est., at top end of the range
Adjusted EPS CNY13.10, est. CNY10.66
Adjusted Ebitda CNY37.10bn, est. CNY34.49bn (range CNY28.49bn bn-CNY37.30bn
Cloud rev. CNY9.29bn, estimate CNY9.24bn
The group’s key metric of mobile monthly active users was also firm relative to expectations at 785 million, versus an estimate of 752.4 million.
Key sales themes were also positive, with the quarter buoyed by improved recommendation algos, a revamped grocery service and more appealing content, like live streams.
It looks like investors, who have already bid the stock up some 30% in a year of unprecedented uncertainty, were perturbed by comments made in a BABA’s post-earnings conference call. Vice chair Joe Tsai made clear that the group would double down on a strategy of pushing into what it has dubbed ‘lower-tier’ cities. “We can afford to be aggressive” he said. “We have the luxury”. The comments upended a rally by the stock in U.S. pre-market trading and pushed the shares lower, before they recouped to trade flattish at last look.
‘Lower-tier’ has been interpreted as lower-margin by the market, suggesting all sorts of negative optics amid a trade war that may or may not be about to cool down, depending on which conflicting headline was reported last.
Alibaba also disclosed that a one-time gain of CNY69.2bn (about $9.7bn) flattered these results. It’s linked to an equity interest in Ant Financial, the payment platform launched by co-founder Jack Ma. Elsewhere, though BABA’s cloud computing side, which competes with Microsoft, Amazon, Google and others, surged 64% in Q2, that represented a slowdown relative to prior quarters.
Perhaps the near-50% rise of rival JD.com speaks more volumes. The Beijing headquartered e-commerce group will report earnings in the middle of the month after posting record operating profit in the prior quarter. A strategic partnership with gaming giant Tencent, is also expected to drive mobile referrals via WeChat in ways that BABA has been tardy to match. Both face risks from mutual competitor Tencent, but JD’s ‘upstart’ status is currently playing better in the context of global challenges.
The market’s unimpressed earnings reaction almost certainly means that BABA’s bid to extend the year’s uptrend will continue to be challenged by zonal resistance that capped the year’s best levels in April. The September high of $183 will be the decider in the near term.
Alibaba CFD – Weekly
Source: City Index
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.