Alibaba Group Holding Ltd (NYSE:BABA) delivers blow out Q1 2018 earnings, makes case for BABA stock at $200.
Alibaba Group Holding Ltd (NYSE:BABA) announced June quarter earnings results yesterday (August 17) before the market opened. Expectations were very high after the company provided strong FY18 revenue growth guidance of 45-49% at its June 2017 Analyst Day. The Jack Ma founded company did not disappoint investors with its latest earnings. Alibaba shares have been on a tear in 2017, with a humongous 87% gain in the Year-to-Date. The latest earnings have propelled the stock to new all-time highs and make a case for more gains going forward. BABA stock has also received multiple price targets upgrades after its blow-out earnings and looks good to head towards the $200 mark.
Alibaba Crushes Wall Street Estimates
The company announced non-GAAP diluted EPS of $1.17 for the June quarter, up from the $0.74 it had reported in the same quarter last year. This number implies a huge 80% sequential and 58% YoY earnings growth. Results beat consensus estimates by a massive $0.24 per share. Alibaba also beat the revenue growth estimates with revenue coming in at $7.4 billion, a 56% YoY increase. According to Yahoo Finance, the consensus estimates were for Alibaba to report revenue of $7.15B, good for 54.6% YoY growth. The Amazon of China did not disappoint, in spite of this being a seasonally weak quarter.
The operating margin was at 35%, while the adjusted EBITDA margin was 50%. The company generated a non-GAAP free cash flow of $3.26 billion. The company's net income doubled from the same quarter last year to $2 billion. Such has been the impressive performance of Alibaba that its profit doubled where as the larger eCommerce giant Amazon (NASDAQ:AMZN) managed just a net income of $200 million in the June quarter.
Core e-commerce business still very hot, Cloud Computing Segment achieves a key milestone.
Revenue from its core commerce segment was intact with a 58% YoY increase to $6.437 billion. The main reason for the increase in revenue was the strong growth of customer management revenue (formerly online marketing service revenue), as well as growth in commission revenue. An interesting part of the core commerce performance was the 136% YoY increase in the International commerce retail, which came in at $382.91 million. At the end of the June quarter, the company's Annual active consumers stood at 466 million, an increase of 12 million from the 12-month period ended March 31, 2017. Mobile MAUs increased by 22 million from March 2017 to 529 million in June.
The Cloud Computing segment revenue growth rate fell below triple digits for the first time since June 2015. Cloud revenue came in at $359 million for the June quarter, a 96% YoY growth. More importantly, Alibaba Cloud reached a key milestone of total paying customers exceeding the 1 million mark for the first time. The number of paying customers of Alibaba Cloud grew to 1,011,000 from 874,000 in the previous quarter and 577,000 a year earlier. Another positive here was that the company remained on course to achieve its goal of improved adjusted EBITA margin highlighted at the investor day presentation. The segments adjusted EBITA margin significantly improved to (4%) from (13%) in the year ago quarter.
The Digital Media & Entertainment Segment revenue grew 30% YoY to $601 million. However, the Adjusted EBITDA margin of this segment increasing to negative 43% from negative 32% in the year ago quarter is little worrying. The management is confident of the synergies between their digital media and entertainment and core commerce business and has stated that it will keep the investments going in content, user acquisition and infrastructure for the segment.
Technicals fall in place for Alibaba stock.
The strong earnings performance of Alibaba is further boosted by bullish technical signals. In yesterday's trading session, BABA stock saw a bullish MACD crossover indicating that the stock is seeing rising near term momentum. Further, the recent uptrend in Alibaba's share price has still not put the stock in overbought territory, as per all popular momentum indicators. The Relative Strength Index(RSI) measure of the stock is still below the commonly used overbought threshold of 70. However, the Bollinger Bands are suggesting an overbought condition. The bullish signal seems to be much stronger for the stock at the moment. So, the rally in Alibaba stock price is most likely to continue for the next few trading sessions.
Alibaba stock makes case for $200
Alibaba's growth engine continues to fire all cylinders. Alibaba stock looks all set to double this year as a number of analysts have upped their price targets after the strong earnings performance, and most of these price targets are above $200. Raymond James has the most bullish target at $220, representing around 34 percent upside from the last close. Alibaba stock at these levels is definitely not cheap but Neil Campling of Northern Trust Capital Markets makes an important point. Quoting him: "Amazon trades at 65 times its full-year 2019 price to earnings (P/E) for 20 percent revenue growth. In contrast, he says that Alibaba trades on 25 times P/E for its fiscal year ending March 2019, for what is likely to be around 40 percent revenue growth. In other words, Alibaba's forward valuation is lower than Amazon's, but revenue is going to grow faster, especially as its cloud business grows." The high valuation of Alibaba seems to be justified by its impressive growth rate and growth potential it offers compared to its peers. If the company delivers another a strong performance in Q2 2018, Alibaba stock could easily hit $200 mark within this year.
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