Key Takeaways for Investors from Alibaba’s 4Q14 Results



Highlights of Alibaba’s quarterly results

Alibaba’s (BABA) revenue of $4.22 billion missed on analysts’ estimates of $4.45 billion. But the earnings per share were better than expectations. Still investors were disappointed with the quarterly results, and Alibaba saw a 10% decline in its value the day it announced its earnings.

Alibaba’s revenue growth rate of 40% was driven by the growth of China’s commerce retail business and an exceptional increase in mobile revenues by 400%. Comparatively, Alibaba’s US rivals Amazon (AMZN) and eBay (EBAY) reported a year-over-year revenue growth rate of 15% and 9%, respectively. Amazon’s revenue growth was driven by the holiday season, while eBay attributed its revenue growth to an increase in PayPal revenue.

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For the quarter ended in December 2014, Alibaba witnessed a huge growth in its mobile monthly active users with an increase of 95% as compared to the quarter a year ago. This further led to the growth in mobile GMV (gross merchandise volume). Mobile GMV now constitutes 40% of total GMV as compared to 20% in the quarter a year ago.

However, Alibaba’s operating margin continued to decline due to investments in new business initiatives, such as mobile operating system, local services, and digital entertainment. Integration of UCWeb and AutoNavi with Alibaba also led to further decline in operating margin. During the earnings conference call, management said that the company won’t manage the margin target, but instead it will continue to invest optimistically for the overall growth of the entire ecosystem.

Alibaba plans to tap the ever-growing mobile market in China

To boost its presence in the mobile market, Alibaba entered into the smartphone market and the online banking market in China. Alibaba acquired a minority stake in handset maker firm Meizu to provide a wide range of mobile offerings to its users.

Also, Alibaba plans to open up its online bank, Alibaba Bank, in May this year after receiving regulatory approval from China’s Banking Regulatory Commission (or CBRC).

In order to grab a larger share of the mobile payments market in China, Alibaba merged its taxi-booking app, Kuaidi Dache, with Tencent’s (TCEHY) app, Didi Daiche. This deal made the combined entity an unrivaled leader in the mobile taxi app market in China.

Investors can gain portfolio exposure to Chinese stocks by investing in ETFs such as the iShares MSCI China ETF (MCHI), which has about 30% of its portfolio invested in the financial services sector in China.


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