Alibaba Q2 2015 Earnings Review

  • Alibaba announced its Q2 earnings results beating revenue estimates by 5% while meeting earnings estimate.
  • The growth in revenues was primarily driven by increase in active users and mobile GMV.
  • Growth in internet penetration in China and increase in percentage of people shopping online will drive Alibaba’s future growth.

alibaba_q22015

Alibaba (BABA) posted its first earnings since the BABA IPO, with its Q2 2015 report on 4th November before the market opened for trading. Alibaba reported an EPS of $0.45 on a revenue of $2.74 billion against analyst consensus EPS of $0.45 on a revenue of $2.64 billion. Increase in active users and mobile GMV drove Alibaba’s revenue growth. Alibaba’s stock rose 4.27% to $106.07 on Tuesday. Alibaba is likely to maintain its growth momentum aided by increase in Chinese online shoppers and better internet penetration in China.

Growth in GMV and Active Users

Alibaba’s gross merchandise value (GMV) grew by 49% on YoY basis. This was mainly due to growth in active users. Annual active users increased 52% from 202 million in second quarter last year to 307 million. The company’s GMV grew by 64% in Q 2 2014 and 45% in Q1 2015. GMV from Taobao, Alibaba’s customer-to-customer (c2c) arm grew by 38.18% on YoY basis while GMV from Tmall registered a growth of 77.8%. Overall 76% of Alibaba’s revenues came from Chinese retail market place.

alibaba_revenuebreakdown

Source: Alibaba

Growth in Mobile Segment

Alibaba’s mobile monthly active users in the Q2 2015 was 217 million compared to 188 million in Q1 2015, an increase of 29 million users in just three months. Alibaba’s mobile GMV for the September quarter was $32 billion tripling from $9 billion a year ago. Mobile GMV accounted for 35.8% of total GMV in the September quarter compared to 14.7% a year ago. Alibaba drove $95 billion in mobile GMV in last twelve months, more than any other company. Alibaba’s mobile GMV will continue to grow as many Chinese use mobile for online shopping. The firm's mobile monetization rate was 1.87% compared to 0.61% last year. However company’s overall monetization rate declined marginally from 2.31% last year to 2.3% this year.

alibaba_mobile

Net Profit and Margins Decline

Alibaba’s net profit fell by 38.6% from a year ago to $494 million or 20 cents a share. The decline in net profit was mainly due to high share based compensation and depreciation and amortization. Alibaba’s margin also came under pressure. Its Non-GAAP EBITDA margin declined to 50.5% compared to 59.4% a year earlier. According to Alibaba margins declined due to consolidations of acquired businesses having lower margin, mainly UC Web and Auto Navi. Investments in new projects like its mobile browser also contributed to lowermargins.

Alibaba’s Revenue Will Continue To Grow

Chinese retail market place will continue to power growth, and Alibaba will emerge as the ecommerce winner, as increasing number of Chinese are taking to online retail for shopping. According to internet live stats, internet penetration in China is around 46.03% totaling to 641 million users. Alibaba’s active users are 307 million. Alibaba has a huge potential to grow its sales in China. According to iResearch GMV of online shopping will double to 5.63 trillion Yuan from current 2.76 trillion yuan.

china_onlinegrowth

Source: iResearch

Conclusion

Alibaba beat revenue estimates while meeting earnings estimates. Growth in annual active buyers and mobile GMV drove revenue growth.  While Alibaba is likely to continue its growth momentum, its margin may come under pressure. Alibaba’s growth in GMV will be driven by higher internet penetration in China and more number of Chinese preferring online shopping over brick and mortar shops.

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