Alibaba Beats As it Becomes One of the Most Shareholder-Friendly Companies
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Alibaba Earnings Overview
After the Hong Kong close/before the US market open, Alibaba reported March quarter and fiscal year results. The results beat analyst expectations. Although they missed revenue slightly in CNY, they beat in US dollar terms. Revenue was the highest ever, except for Q3, which always has a big jump due to the Singles Day sales event.
Fiscal year revenue was also the highest level ever, up+2% year-over-year (YoY). The core China E-Commerce business had a small negative -3% YoY revenue growth, though management’s focus on costs led to a strong uptick in the bottom line. Cloud revenue was also weak, while logistics arm Cainiao posted strong revenue growth of +18% and international E-Commerce posted revenue growth of +29%.
Alibaba is much farther along in its planned move to become a holding company of the six major business groups as they have appointed a Board of Directors for each of the six companies and formed a Capital Management Committee focused on “enhancing shareholder value.” The company will spin off the Cloud Intelligence Group via a stock dividend as the unit becomes a publicly listed company in the next twelve months. Cainiao Smart Logistics and grocery chain Freshippo have been approved to “explore an initial public offering” in the next 12 to 18 months for the former and 6 to 12 months for the latter. In the release, the company announced it had bought 21.5mm ADRs for $1.9B, with another $19.4B to spend on buybacks through March 2025.
- Revenue +2% to RMB 208.2B ($30.316B) versus analyst expectations RMB 209.1B versus YoY comparison of RMB 204B
- Adjusted Net Income +38% to RMB 27.375B ($3.986B) versus analyst expectations RMB 24.5B versus YoY comparison of RMB 21.4B
- Adjusted EPS +35% to RMB 10.71 ($1.56) versus RMB 9.44 versus YoY comparison of RMB 7.95
- Cash on the balance sheet increased to RMB 560B ($81B) from RMB 446B year over year as free cash flow increased +74% to RMB 171B ($24.9B) from RMB 98.8B
“We are taking concrete steps towards unlocking value from our businesses and are pleased to announce that our board has approved a full spin-off of the Cloud Intelligence Group via a stock dividend distribution to shareholders.”
“We have established a capital management committee at the Alibaba board level to undertake a comprehensive capital management plan to enhance shareholder value. Alibaba is committed to improving shareholders’ return through the implementation of a robust capital allocation framework,” said Toby Xu, Chief Financial Officer of Alibaba Group. “We are delighted to share that our board has approved the process to start external financing for Alibaba's International Digital Commerce Business Group; the exploration of an IPO for Cainiao Smart Logistics Group; and the execution of an IPO for Freshippo.”
Asian equities were largely higher overnight as investors cheered progress or perceived progress on addressing/kicking the can on the US debt ceiling.
Hong Kong outperformed though many dual-listed names didn’t rise as much as their US listings did on Wednesday. Hong Kong’s most heavily traded stocks were Tencent, which fell -0.88%, Alibaba, which gained +2.69%, Meituan, which gained +0.38%, China Mobile, which gained +1.94%, Baidu, which gained +1.45%, and BYD, which gained +1.75%.
Tencent was off as the media highlighted that the revenue beat, but missed on adjusted net income and adjusted EPS. Yes, advertising was slightly weaker than anticipated, but the company cited a one-time increase in their tax rate, which hurt the bottom line. Have you seen any headlines on Tencent’s quarterly revenue being its HIGHEST ever? Me neither! Mainland investors noticed though, as Tencent was a large net buy via Southbound Stock Connect. Tencent management cited the “domestic consumption recovery” similar to JD.com noting Q2 sales were outpacing Q1 sales, and Baidu’s Robin Li stating that the “online marketing business has seen a positive impact from China’s overall economic improvement.”
An element of today’s Hong Kong gain is the belief that policymakers will step on the stimulus gas pedal after April’s economic data. It is worth noting that online real estate firm KE Holdings (BEKE US, 2423 HK) beat analyst expectations as gross transaction value increased +65.8% year-over-year while revenue increased +61.6% as management kept costs down. Mainland China posted small gains though CNY depreciated versus the US dollar as currency traders appear to believe further easing is coming. Bonds rallied on equity weakness and potentially on the expectation of a rate cut. Foreign investors were small net sellers of Mainland stocks. Australia and China are making small steps to improve their economic relationship with their Prime Minister potentially visiting China. It is too bad that Biden does not do the same since he is currently only an hour away from Beijing. Meanwhile, China’s diplomatic team is in Kyiv meeting with President Zelensky and other Ukrainian leaders.
The Hang Seng and Hang Seng Tech indexes gained +0.85% and +1.21%, respectively, on volume that decreased -2.93% from yesterday, which is 83% of the 1-year average. 270 stocks advanced, while 208 stocks declined. Main Board short turnover declined -15.92% from yesterday, which is 87% of the 1-year average, as 17% of turnover was short turnover. Value factors outperformed growth factors as large caps outpaced small caps. The top-performing sectors were energy, which gained +2.62%, technology, which gained +2.08%, and financials, which gained +2.01%. Meanwhile, healthcare fell -1.5%, utilities fell -1.06%, and real estate fell -0.29%. The top-performing subsectors were media, technical hardware, and semiconductors. Meanwhile, food, pharmaceuticals, and healthcare equipment were the worst. Southbound Stock Connect volumes were light as Mainland investors bought $221 million worth of Hong Kong stocks, as Tencent was a large net buy and Meituan was a small net sell.
Shanghai, Shenzhen, and the STAR Board gained +0.40%, +0.13%, and +0.50%, respectively, on volume that increased +12.47% from yesterday, which is 95% of the 1-year average. 2,136 stocks advanced, while 2,492 stocks declined. Value factors outpaced growth factors, while large caps outpaced small caps. The top-performing sectors were communication, which gained +0.6%, energy, which gained +0.48%, and technology, which gained +0.38%. Meanwhile, consumer staples fell -1.37%, industrials fell -1.32%, and real estate fell -1.31%. The top-performing subsectors were internet, communication equipment, and computer hardware, while agriculture, power generation equipment, and restaurants were the worst. Northbound Stock Connect volumes were light as foreign investors sold -$261 million worth of Mainland stocks as Kweichow Moutai was a small/moderate net sell, Foxconn was a small net sell, and Ping An was a very small net sell. CNY fell -0.57% to 7.03 CNY per USD, while the Asia Dollar Index was off -0.27%. Treasury bonds rallied while copper and steel gained.
Last Night's Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.04 versus 7.00 yesterday
- CNY per EUR 7.61 versus 7.57 yesterday
- Asia Dollar Index -0.27% overnight
- Yield on 10-Year Government Bond 2.72% versus 2.72% yesterday
- Yield on 10-Year China Development Bank Bond 2.88% versus 2.89% yesterday
- Copper Price +1.96% overnight
- Steel Price +0.52% overnight