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How Alibaba’s Revenue and EPS Stack Up against Its Peers

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Financial results for the quarter ended June 30

Alibaba Group Holding (BABA) has released its financial results for the quarter ended June 30. Its revenue grew 61% to 80.9 billion yuan ($12.2 billion). The stellar growth was due to revenue growth for China’s commerce retail business and Alibaba Cloud, as well as the merging of Cainiao Network and Ele.me. Annual active customers grew 24% YoY (year-over-year) to 576 million in the 12 months ended June 30. Mobile monthly active users increased 20% on June 30 to 634 million since June 30, 2017.

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Alibaba’s segmental revenue growth

Alibaba’s revenue from core commerce grew 61% to 69.2 billion yuan ($10.5 billion). Cloud computing revenue increased 93% to 4.7 billion yuan ($710 million). Digital media and entertainment revenue grew 46% to 6 billion yuan ($903 million). Revenue from innovation initiatives and other increased 64% to 1.1 billion yuan ($160 million).

JD.com’s (JD) and Tencent Holdings’ (TCEHY) revenues for the quarter ended June 30 were 122.3 billion yuan ($18.5 billion) and 73.7 billion yuan ($11.1 billion), respectively. Amazon’s (AMZN), eBay’s (EBAY), and Walmart’s (WMT) revenues for the comparable quarters were $52.9 billion, $2.6 billion, and $128 billion, respectively.

The rise in cost of revenue

Alibaba’s cost of revenue rose 150% to 43.7 billion yuan ($6.6 billion) in the quarter ended June 30. It claimed 54% of revenue in that quarter compared to 35% in the quarter ended June 30, 2017. The increase was due to the merger of Cainiao network and Ele.me, inventor and logistics costs associated with its new retail businesses and Lazada, and higher content expenditures for Youku and the World Cup.

As a result, gross profits grew 14% in the quarter, and the higher cost of revenue led to a gross margin of 46% compared to 65% in the quarter ended June 30, 2017.

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Operating expenses and income from operations

Alibaba’s operating expenses shot up 92% to 29.2 billion yuan ($4.4 billion) in the quarter ended June 30. Higher product development expenses, sales and marketing expenses, and general and administrative expenses drove growth. Those expenditures consumed 36% of revenue in the quarter compared to 36% in the quarter ended June 30, 2017.

All the above translated to a 54% decline in income from operations of 8 billion yuan ($1.2 billion). Its operating margin decreased from 35% in the quarter ended June 30, 2017, to 10% in the quarter ended June 30, 2018.

Alibaba’s net income and EPS growth

Alibaba’s other increased 133% to 6 billion yuan ($899 million). Net income remained at 20.1 billion yuan ($3 billion). Its net margin decreased from 40% in the quarter ended June 30, 2017, to 25% in the quarter ended June 30, 2018. EPS grew 1% to 8 yuan ($1.20).
Alibaba has met every quarterly consensus EPS estimate since June 30, 2017.

Amazon (AMZN), eBay (EBAY), and Walmart (WMT) met their quarterly EPS consensus estimates for the comparable quarters. However, China’s leading Internet service provider Tencent Holdings (TCEHY) and e-commerce major JD.com (JD) didn’t meet their consensus EPS estimates for the same quarter.

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