Growth has been the coveted beanstalk in Alibaba’s garden. However, the third-quarter fiscal 2024 recent earnings report dipped 2% from the year-ago quarter’s reported figure in RMB terms with non-GAAP earnings of $2.67 per ADS (RMB 18.97). Yet, the revenues of RMB 260.35 billion ($36.7 billion) saw a hearty 5% leap. Regrettably, the top line missed the Zacks Consensus Estimate of $37.2 billion.
Segment Revenues
Taobao and Tmall Group: These retail and wholesale businesses operating in China plated a sumptuous RMB 129.1 billion ($18.2 billion) in revenues. An ascend of 2% from the year-ago quarter whetted appetites.
China Commerce Retail: This segment’s revenues climbed 1% to RMB 123.8 billion ($17.4 billion), propelled by surging direct sales and a growing online GMV on Taobao and Tmall.
China Commerce Wholesale: A substantial 23% escalation in revenues to RMB 5.31 billion ($747 million) was attributed to an upswing in value-added services.
Alibaba International Digital Commerce Group: This international retail and wholesale market segment stirred the pot with RMB 28.52 billion ($4.02 billion) in revenues, a mouthwatering 44% jump from the year-ago quarter.
Local Services Group: The segment’s revenues rose 13% to RMB 15.2 billion ($2.14 billion), driven by soaring order growth in Ele.me and Amap businesses.
Cainiao Smart Logistics Network: A substantial 24% increase in revenues to RMB 28.5 billion ($4.01 billion) was stirred by a gratifying momentum across cross-border fulfillment solutions.
Cloud Intelligence Group: This segment’s revenues reached RMB 28.1 billion ($3.95 billion), growing 3% from the year-ago quarter driven by strength across Alibaba’s consolidated businesses.
Digital Media and Entertainment Group: Alibaba’s revenues fetched RMB 5.04 billion ($710 million), savoring an 18% increase from the year-ago quarter, driven by the strength in the offline entertainment businesses of Alibaba Pictures.
All Others: The segment’s revenues unfortunately decreased by 7% to RMB 47.02 billion ($6.6 billion), which was perceived as a cause for concern due to declining revenues from Sun Art.
Operating Insights
In the fiscal third quarter, sales and marketing expenses were RMB 33.8 billion ($4.8 billion), which increased by 10.3%. Yet, as a percentage of total revenues, it expanded 100 basis points (bps) to 13%.
General and administrative expenses rose by 9% to RMB 11.3 billion ($1.6 billion) from the year-ago quarter. As a percentage of total revenues, this figure expanded by 10 bps from the prior-year quarter.
Product development expenses priced at RMB 13.5 billion ($1.9 billion), down 0.2% from the year-ago quarter, contracting by 100 bps year over year as a percentage of total revenues.
The operating income in the reported quarter toted up to RMB 22.51 billion ($3.2 billion), marking a 36% drop from the previous year. The operating margin contracted by 500 bps from the year-ago quarter to 9% in the fiscal third quarter.
However, adjusted EBITDA did show a 1% increase from the year-ago quarter to RMB 59.6 billion ($8.4 billion).
Balance Sheet & Cash Flow
As of Dec 31, 2023, cash and cash equivalents snowballed to $35.9 billion (RMB 254.8 billion) from $33.4 billion (RMB 243.7 billion) as of Sep 30, 2023.
Short-term investments trembled to $42.3 billion (RMB 300.42 billion) at the end of third-quarter fiscal 2024, up from $40.7 billion (RMB 296.8 billion) at the end of second-quarter fiscal 2024.
The trove from cash operations in the reported quarter was $9.1 billion (RMB 64.7 billion), a bonny bump from $6.7 billion (RMB 49.2 billion) in the previous quarter. Alibaba’s free cash flow was $7.96 billion (RMB 56.54 billion).
Zacks Rank & Stocks to Consider
Presently, Alibaba holds a Zacks Rank #3 (Hold). For those interested in the broader retail-wholesale sector, consider some appealing alternatives such as Amazon, Fastenal, and Darden Restaurants. Amazon sports a Zacks Rank #1 (Strong Buy), while Fastenal and Darden Restaurants carry a Zacks Rank #2 (Buy) at present.
Consequently, considering the historical context, Alibaba’s investment in growth is a swallowed bone with investors; notably, reaching $6.5 billion to acquire control of all of Sun Art, indicating a foray into the superstore model. Whether this gamble will pay off or result in growing pains remains a question on the market’s collective mind.
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The Financial Landscape
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Fertile Ground for Investors
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