Shares of Alibaba Group Holding Ltd. (BABA) rose on Wednesday after the China-based retailer reported blowout corporate earnings, defying a broad cooldown in the world’s second-largest economy.
Q4 2019 Summary
- Earnings: USD $3.48 billion
- Revenue: USD $13.9 billion
Alibaba’s Rebound
Alibaba returned to growth in its fiscal fourth quarter, as annual revenues surged 51% to 93.5 billion RMB, or $13.9 billion. That was well ahead of analysts’ consensus forecast of 91.5 billion.
The company generated net income of 23.38 billion RMB, or $3.48 billion. Adjusted per-share earnings were 8.57 yuan, topping forecasts for 6.5 yuan.
Following the stellar quarter, Alibaba says it expects sales in the current year to rise by at least 33% to more than 500 billion yuan.
Alibaba’s core commerce business saw its yuan-denominated revenues climb 54% to 78.9 billion. Customer management sales rose 31%.
The company is also capitalizing on the shift to mobile shopping, as evidenced by the number of mobile monthly users. This metric reached 721 million in March, an increase of 104 million from the previous year.
BABA shares rose by as much as 2.3% in North American trading. The stock has a total market capitalization of roughly $470 billion. The share price is up nearly 30% year-to-date.
Source: Yahoo Finance
Assessing China
China’s economic slowdown accelerated last year, with key measures of factory output, consumer spending, and fixed-asset investment showing signs of weakness. Gross domestic product (GDP) – the value of all goods and services produced in the economy – increased 6.6% in 2018, the slowest expansion rate in 28 years.
Although China’s cooling economy can be partially attributed to a shift in industrial policy, the ongoing trade war with the United States has had a negative impact. On Friday, the Trump administration raised duties on $200 billion worth of Chinese imports, forcing Beijing to retaliate with new tariffs of its own.
All said, 2019 is expected to be another year of declining growth for the world’s second-largest economy. GDP surprised to the upside in the first quarter but is unlikely to repeat its performance in subsequent quarters, according to the International Monetary Fund (IMF). The IMF expects China’s economy to expand just 6.3% this year, marking a new three-decade low.
Since much of this slowdown will be concentrated in traditional smokestack industries tied to manufacturing, Alibaba may not be as affected as other segments of the economy. As TechCrunch notes, the company is viewed as “the gateway to Chinese consumers,” and will continue to capitalize on Beijing’s shift from exports and manufacturing toward consumption and services.
Conclusion
Alibaba bounced back in a big way in Q4. The company is slowly expanding beyond its core target market with big bets on brick-and-mortar retail and cloud computing. The fact that China is opening up its domestic market to foreign companies could be a boon to Alibaba and other consumer-focused businesses.
Disclaimer: Author holds no investment position in Alibaba at the time of writing.
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