Shares of Alibaba Group Holding Ltd (NYSE:BABA) have largely been a disappointment since their record-setting debut. However, better-than-expected Alibaba earnings and a new CEO might be just the catalyst BABA stock needs.
Alibaba stock is still up about 18% from its initial public offering price of $68, but with the exception of a short-lived rally over the following month, shares have been in a downtrend. Indeed, BABA stock is still 9% below where it closed on its first day of trading.
Alibaba stock has fared even worse more recently, falling more than 17% so far this year, hurt by increased scrutiny by the Chinese government over the sale of counterfeits on its platform and concerns over the shift to mobile.
Alibaba earnings didn’t put all those fears to rest, but they sure boosted the market’s confidence in BABA stock.
More than anything, it appears the market applauded a broad management shuffle at the company. BABA promoted its chief operating officer to the position of CEO and changed responsibilities for another 10 executives, including its chief marketing officer and chief technology officer.
The shuffle marks a generational change at the company. As CEO Jack Ma remarked:
“This marks a future where the post-[1970] generation will command the troops at Alibaba Group!”
A younger management team might serve BABA better in the rapidly developing mobile age, and perhaps be a source of more innovative ideas. Either way, the market was excited, sending BABA stock up sharply in early trades.
Alibaba Earnings Beat Also Lift BABA Stock
BABA stock also got a lift from earnings and revenue that beat Wall Street estimates, and continued growth of its mobile efforts. After excluding costs for stock-based compensation and other items, earnings came to 48 cents per share; analysts were predicting earnings of 42 cents per share. That’s a healthy earnings beat.
Revenue also came in ahead of expectations by a comfortable margin. The top-line tally came to $2.81 billion vs. estimates of $2.77 billion.
Mobile is the future, which puts Alibaba’s mobile efforts under the microscope. Fortunately, BABA’s mobile user base is growing rapidly.
Indeed, mobile transactions accounted for more than half Alibaba’s overall transactions for the first time, up from 42% in the prior quarter and 27% a year ago. BABA now has 289 million active users on its mobile platforms, up from 265 million in December and 163 million in the same quarter last year.
But mobile transactions don’t translate into revenue at the same rate as other transactions, making them less lucrative and spooking some investors. And in the most recent quarter, the percentage of transaction value that turned into revenue fell into decline.
BABA says the problems are seasonal, but it highlights the scrutiny the company’s mobile operations garner, which were hurting sentiment.
Now that earnings and revenue beat Street expectations in what was widely expected to be a just an okay quarter, sentiment should swing back to being favorable for BABA stock.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
