Alibaba’s Strong Q4 Earnings Trigger Tumultuous Sharemarket Response

    Despite the shaky response from investors, Alibaba still looks undervalued to analysts.
    Alibaba CEO Daniel Zhang (张勇). Photo: VCG
    Sam GaskinAuthor
      Published   in Fashion

    Alibaba reported fourth-quarter earnings that exceeded expectations on Friday, with gains of 0.91 per American Depositary Share (ADS) on revenues of 9.87 billion. The consensus going into the report was earnings of 0.84 per ADS on revenues of 9.3 billion, according to Forbes.

    Despite the positive news, the sharemarket opened down 2 per share at around 180 before recovering to 188.89 by the end of the day, up 3.5 percent. Despite the wild ride, financial analyst Jay Somaney says Alibaba is still undervalued, meaning it’s not too late for those who sold off shares before the price recovered. “My fair value estimate for Alibaba is now north of 255 per share,” he said.

    Particularly impressive about Alibaba’s Q4 results is the strength of growth seen across its various businesses. Together, annual active users on Alibaba’s websites were up 37 million from the 12 months to December 31, 2017, to reach a staggering 552 million. A large part of that growth looks to have come from mobile users. Mobile monthly active users on Alibaba’s e-commerce platforms reached 617 million in March 2018, an increase of 37 million over December 2017.

    The report noted that as of March 31, 2018, there were over 150,000 brands on Tmall, with its luxury offering, Luxury Pavilion, yet to exceed 50 brands. Those who are on board now include Burberry, Dom Perignon, Tod's, Zenith, La Mer, Maserati, and Guerlain.

    That comes as something of a reality check to how significant the company is in the luxury realm. In assessing Alibaba's importance to the luxury market, however, it is important to consider its influence on the entire consumer market culture, luxury included. Young Chinese consumers have grown up with Chinese e-commerce, using Alipay to make payments, and have no qualms about buying luxury items online.

    Breaking down sources of revenue, Alibaba said it’s core commerce trade was up 62 percent year-on-year, to reach 8.2 billion, while cloud revenues rose 103 percent to 669 million, and digital media and entertainment revenues rose 34 percent to 840 million. Alibaba also owns a third of Ant Financial, which was valued at over 150 billion in its last funding round. Ant Financial has been described as the world's largest ‘unicorn’.

    “Alibaba Group had an excellent quarter and fiscal year, driven by robust growth in our core commerce business and investments we have made over the past several years in longer-term growth initiatives,” said Daniel Zhang, Chief Executive Officer of Alibaba Group.

    “With the continuing roll out of our New Retail strategy, our e-commerce platform is developing into the leading retail infrastructure of China,” he said. “During the past year we also doubled down on technology development, cloud computing, logistics, digital entertainment and local services so that we are in a position to capture consumption growth in China and other emerging markets.”

    “Looking ahead to fiscal 2019, we expect overall revenue growth above 60 percent, reflecting our confidence in our core business as well as positive momentum in new businesses, said Maggie Wu, Chief Financial Officer of Alibaba Group. “We expect our new growth initiatives will drive long-term, sustainable value for our customers and partners and increase our total addressable market.”

    The full Alibaba Q4 earnings report is available here.

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