It was hard to see this one coming. Alibaba Group Holding Ltd (BABA) stock easily exceeded both earnings and revenue expectations in its fiscal third quarter, causing the stock to spike in early morning trading. And while those gains have quickly evaporated, you gotta hand it to Alibaba — it strung together a nice quarter.
The fact that Alibaba did this while China’s economy has slowed to its slowest growth rate in the last 25 years makes the feat all the more impressive. Even with competitors like JD.com Inc(ADR) (JD), Alibaba was able to crush estimates.
That’s impressive.
It also raises the nagging question: Is BABA stock finally a buy? Can investors overlook China’s woes and regain confidence in an Alibaba stock that is down 16% in 2016 and 30% in the last year?
Let’s take a gander at Alibaba earnings for answers.
Mobile, Monetization and User Growth
Frankly, it’s unfair that BABA stock is taking a dive this morning. It should’ve stuck with those 4% premarket gains, which I believe it deserves. Revenue rose 32%, from 26.18 billion Chinese yuan a year ago to 34.54 billion yuan in the most recent quarter. That translates to revenue in U.S. dollars of $5.33 billion, easily trumping the $5.11 billion consensus.
And BABA earnings per share, adjusted for one-time costs, came in at 99 cents per share, more than 11% better than the 89 cents analysts expected. That’s an increase of 25% from the same quarter a year ago.
Mobile monthly active users, a vitally important statistic in today’s increasingly mobile-focused retail economy, soared 48% to 393 million, driving an incredible increase in mobile revenue, which jumped 192%. Mobile gross merchandise value (GMV), or the value of all goods and services exchanged on Alibaba websites, now accounts for 68% of total GMV.
But that’s not the only reason BABA stock should be rising. Alibaba is also making more money off each transaction — it’s monetizing like mad. In the same quarter a year ago, Alibaba took a 2.7% cut of each transaction. In the most recent quarter, that number increased to 2.98%.
The flip side of that impressive metric is that Alibaba can’t continue to do that forever. If a few years from now, Alibaba is taking 10% of every transaction … well, JD.com will probably be much more popular.
For now, it’s chalking up its ability to raise its cut to the company’s ability to “deliver a broader value proposition to sellers in addition to sales generation.”
The long-term growth driver for BABA stock will be user growth, and Alibaba still has that in spades. Annual active buyers jumped 22% year-over-year, to an incredible 407 million.
Going into earnings, I didn’t think Alibaba stock was worth a shot. I, like a lot of people, had doubts about the Chinese consumer in a time of dramatic growth deceleration. But I was wrong.
With shares currently trading at just 18.6 times trailing earnings, this large-cap growth stock still has unique exposure to one of the largest economies in the world. And although China’s growth is slowing, it’s still growing far faster than the vast majority of countries in the world.
With sentiment on China so negative right now, I wouldn’t blindly buy into BABA stock … but it may be time to start building a position.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
