Alibaba Group Holding Ltd reported above-expectation 3QFY16 EPADS. However, many saw the results as more of a mixed bags and shares closed down 3.87% in Thursday’s trading session. Goldman Sachs analysts note that Total revenue of RMB34.5bn (+32% yoy) was 2%/4% above GSe/Bloomberg consensus; non-GAAP EBITDA/ net income was 4%/12% above GSe. We estimate that 75% of the Rmb2.5bn pre-tax profit beat vs. GSe (18%) was due to higher non-operating items, including investment income and other income.
Analysts react to Alibaba Group Holding Ltd (BABA) earnings results
What to do with the stock (1) China retail GMV grew 23% yoy (GSe 26%) in the Dec. quarter–Taobao/ TMall grew 14%/37% yoy, slowing down from 15%/56% a quarter ago. Mgmt. attributed the slowing growth to a high base and warm winter which impacted apparel sales. We model 22% GMV yoy for the March quarter. (2) Blended monetization expanded 28bp yoy to 2.98%, driven by 91bp higher mobile take rate at 2.88%. Mgmt. expects the robust upward trend to continue as the negative impact of online lottery is partly eased from 4Q, and they see BABA platforms as becoming increasingly attractive to merchants for brand building and customer engagement. China retail revenue grew 35% yoy; we estimate excl. the impact of the suspension of online lottery business, growth would have been 37% yoy. (3) Int’l grew in the mid-teens again, and continues to account for 6% of revenue. Cloud remains the fastest growing segment, +126% yoy, and now accounts for 2% of revenue. (4) Koubei, the local service JV with Ant Financial (50% stake, booked as equity investment), announced GMV for the first time of Rmb15.8bn, a major portion of which was offline payment transactions via AliPay. We revise FY16/17/18E EPADS by +6%/+2%/-2% to reflect strong monetization despite the GMV softness, which leads to a 1% lower 12m TP of US$96 (still based on 25X CY17E P/E). Maintain Buy. Key risks: slower GMV growth, lower monetization, more intense competition.
Both revenue and profit beat in FY3Q16. E-Commerce is resilient despite macro weakness. Monetization rate reached a historic high and is expected to further trend up. Lower tier city expansion is on track. We expect O2O investment in Koubei to increase, revising down FY4Q16 earnings by 4.2% and expect the Street to follow suit. Maintain Buy; revised down PT by 5.5% to US$86, mainly due to our assumption of 7.8% devaluation of RMB vs USD by January 2017. Results beat; e-Commerce growth resilient despite macro weakness. FY3Q16 revenue was RMB34.5bn, +55.8% QoQ and 31.9% YoY, 3.9% and 6.6% above Street and our estimate, respectively. Non-GAAP net profit was RMB16.4bn, +76.3% QoQ, +25.5% YoY, 12% and 4.4% above Street and our estimate, respectively.
FQ3 2016 Positives & Negatives
We were positive on: 1) FQ3 revenue & EBITDA beat on better than expected China Commerce revenues (+35% YoY); 2) Significant uptick in overall take rates (2.98% vs 2.70% FQ3 2015), with mobile take rates at 2.98% (vs. 1.96% FQ3 2015); 3) Macro commentary suggesting sustainable growth rates driven by the shift from investment to consumption (including accelerating 2015 China retail sales growth) & increasing eCommerce penetration (now at 12.9% vs. 10.6% in 2014); & 4) AliCloud revenues +126% YoY. We were less positive on: 1) Continued EBITDA margin deleverage (~300bps YoY), with higher COGS driven by new business initiatives & higher traffic acquisition costs (albeit with stable core margins); & 2) Tmall GMV growth deceleration (+37% vs +56% in FQ2), impacted by apparel category softness (weather related).
Despite the challenging backdrop of a weakening Chinese economy, alibaba delivered stronger-than-expected 3Q:FY16 revenue and EPS results, driven mainly by improving monetization. Mobile monetization was particularly impressive in the quarter as it is closing in on desktop monetization faster than expected. The GMV miss, while explained away by management as being the result of warm weather negatively effecting demand for higher-ASP merchandise, is nonetheless a concern to us short-term considering China’s slowing economy. Longer-term however, we believe 1) the country’s low ecommerce penetration rate, 2) rising middle class, 3) BABA’s ability to service retail-hungry customers in the most remote rural areas, and 4) BABA’s ~85% share of ecommerce in China, makes it one of the best plays on this secular growth story. We maintain BUY/PT of $90.
alibaba reported CY4Q15 revenue of Rmb34.5 bn (up 56% QoQ and up 32% YoY), beating CSe and consensus’ Rmb33.2 bn. CY4Q15 non-GAAP EPS was Rmb6.43, higher than our forecast of Rmb5.11 and consensus estimates of Rmb5.83.
? Strong monetisation rate improvements: second quarter in a row, BABA saw YoY improvement in monetisation rate. Blended take rate was 2.98% vs. 2.7% last year and CSe of 2.85%. We expect take rate to continue to see improvements, as merchants leverage BABA as a branding and customer retention channel.
? GMV growth was slower than expected, up 23% YoY (behind our 25% YoY forecast). Management maintains its positive outlook on GMV growth despite the slower GDP growth: consumption driven by middle-class life style upgrade and younger generation being more prone to spend.
? Maintain OUTPERFORM and TP of US$95. Revising up FY16 EPS by ~8%; Our DCF-based TP implies 33.1x CY16E and 26x CY 17E dil. adj. P/E. Our TP includes BABA core business value of US$88.4/ADS, and value of Ant Financial at US$6.70/ADS. Alibaba is a CS AxJ Focus List Stock.