Alibaba: 1Q20 results surprise on the upside

Despite China’s slowing economic growth and the ongoing trade war with the US, Alibaba reported better-than-expected 1Q20 revenue and earnings on 15 August. Revenue came in at CNY114.92bn (c. $16.74bn) – a 42% YoY jump, aided by growth in its e-commerce and cloud computing businesses. Revenue also exceeded the Refinitiv consensus forecast of CNY111.73bn. Diluted earnings per share (EPS) of CNY12.55 was above the CNY10.25 Refinitiv consensus estimate, as Alibaba’s operating margins expanded by 3% YoY.

Alibaba is generating impressive customer adds and growth, driven by the company’s core ecommerce business (which accounts for most of its revenue). This business includes the Tmall and Taobao shopping platforms, two of the world’s biggest e-commerce sites, as well as food delivery business Ele.me, amongst others. Revenue in the ecommerce business rose 44% YoY, as the number of annual active customers on its China retail marketplaces reached 674mn – up by 20mn since 31 March. The company said that over 70% of those new consumers were from lower-tier cities. Mobile monthly active users (MAUs) reached 755mn – an increase of 34mn since 31 March.

Alibaba’s cloud computing segment (accounting for c. 6.8% of revenue) continued to grow rapidly, with revenue rising by 66% YoY to CNY7.79bn ($1.1bn). Alibaba is the largest cloud computing player in China (by market share), although it is facing increased competition from large rivals such as Tencent. During the quarter, Alibaba Cloud launched over 300 new products and features, driving up its average revenue per user (ARPU).

Meanwhile, the company’s Digital Media and Entertainment segment recorded revenue growth of just 6% YoY. Its Youku streaming platform (similar to Netflix), increased its number of average daily subscribers by 40% in the quarter.

Alibaba makes the bulk of its money in China and the company’s share price has been on a rollercoaster ride this year as the US-China trade war continues. CNBC reports that since talks between the US and Beijing reached an impasse in May, Alibaba’s share price is down c. 15%.

In May 2019, Alibaba’s board approved a refresh of its share repurchase programme for $6.0bn over a two-year period. Alibaba’s share price in New York is up c. 20% YTD.

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