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Alibaba’s Stock Declined after the December Quarter 2014 Earnings

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Alibaba’s stock declined by 10%

Alibaba (BABA) is the largest e-commerce player in China. The company reported its December quarter 2014 earnings on January 29, 2015. However, the earnings missed analysts’ estimates. This caused Alibaba’s stock to decline by 10% the same day. Alibaba’s revenue grew by 40% year-over-year, or YoY, to $4.22 billion. However, it missed analysts’ estimate of $4.45 billion.

Although the EPS (earnings per share) of $0.81 was better than analysts’ estimates of $0.75 per share, the market was disappointed with the company’s revenue growth. As a result, the market punished the stock.

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Revenue growth

Alibaba’s revenue increased by 40%. It was driven by rapid growth in China commerce retail business. It was also driven by increased mobile revenue from China commerce retail business.

Revenue from China commerce retail business increased by 32%. This increase was mainly driven by the growth in commission revenue and online marketing services revenue. Online marketing services revenue is the revenue incurred from the fees Alibaba charges its merchants for online advertising on its sites.

The YoY increase of 400% in mobile revenue from China commerce retail business was primarily due to a 200% YoY increase in mobile GMV (gross merchandise volume). Mobile GMV growth was driven by an increase in the mobile monthly active users and an increase in the level of their spending.

Let’s take a look at other companies in the industry. Amazon (AMZN) announced its 4Q14 results in January this year. Its revenue also missed estimates by $350 million. Its EPS beat expectations by $0.18. Similarly, eBay (EBAY) also missed revenue expectations by $10 million. It beat EPS estimates by $0.01.

Net income declined by 28% YoY

Alibaba reported a 28% YoY decline in GAAP (generally accepted accounting principles) net income in the quarter ending December 31, 2014. The decline was primarily due to following reasons:

  • There was an increase in the share-based compensation expense, including the effect of mark-to-market accounting of a share-based award of 1.5 billion renminbi.
  • There was a paid one-time charge of 830 million renminbi for financing-related fees. This was due to the early repayment of banks’ borrowing totaling $8 billion.
  • There was an increase in income tax expenses due to the expiry of the enterprise income tax, or EIT, exemption period for one of the company’s major subsidiaries.

To gain exposure to Chinese stocks, investors can consider ETFs like the iShares China Large-Cap ETF (FXI). It has major holdings in financial banks in China. You can get diversified exposure to Amazon by investing in the PowerShares QQQ Trust, Series 1 (QQQ). It invests 3.5% of its holdings in Amazon.

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