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Earnings Results: Alibaba stock soars after earnings beat, signs of ‘improving’ conditions amid COVID-19 resurgence

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Alibaba Group Holding Ltd.’s U.S.-listed shares climbed 14.8% in Thursday trading to log their second-best single-day performance on record after the Chinese e-commerce giant beat revenue and earnings expectations for the latest quarter.

Though Alibaba
BABA,
+14.79%

is feeling a sting from the latest COVID-19 outbreak in China and a general slowdown in Chinese e-commerce growth, the company broke from its pattern of recent revenue misses by topping the FactSet consensus for its fiscal fourth quarter. Alibaba generated RMB204.1 billion ($32.2 billion) in revenue for the March period, up 9% from the RMB187.4 billion it posted a year before, and ahead of the RMB199.5 billion that analysts tracked by FactSet had been predicting.

Alibaba had posted three straight revenue misses prior to Thursday’s beat, according to an analysis of FactSet data. Alibaba shares had declined following each of the company’s prior 10 earnings reports, before rallying in a big way Thursday. The stock’s Thursday gains made for the company’s largest-ever post-earnings percentage gain on record, according to Dow Jones Market Data.

Chief Executive Daniel Zhang shared on Alibaba’s earnings call that the latest COVID-19 wave in China has impacted the company’s business “to varying degrees.” New COVID cases have cropped up in areas where Alibaba generates significant gross merchandise volume and that are important from a logistics perspective.

He said that “electronics consumption” among the company’s customer base has decreased, according to a FactSet transcript, while demand for essential items such as food has gone up sharply. Consumers are stockpiling food, he added.

Still, he signaled that conditions were showing signs of improvement.

“Talking about the situation in May over the past couple of weeks, with the resumption of express deliveries and with the beginning of the normalization of the situation in Shanghai, certainly we see things improving, but it will take time for all of the outstanding parcels to be delivered and also for merchants to make their preparations for the upcoming 6.18 [shopping festival],” Zhang said on the call.

The company’s China commerce business recorded RMB140.3 billion in revenue in the latest quarter, up 8% from a year before. Alibaba disclosed that it had a combined 903 million annual active consumers for its China commerce segment as of March 31.

Alibaba shared in a release that it has seen success in its strategy to “attract and retain users of different demographics and shopping behaviors to our commerce ecosystem.”

“While it seems too early to give the ‘all-clear’ signal, we acknowledge that clouds are slowly lifting with business trends in May improving over April, government policy possibly becoming more accommodating for Internet companies in China, sustained Ebita [earnings before interest, taxes, and appreciation] profitability in cloud services despite top-line pressure, moderating losses in Taobao Deals and other growth segments, more expense discipline, and a focus on ‘higher quality’ growth initiatives,” Baird analyst Colin Sebastian wrote following the report.

The company logged a net loss of RMB16.2 billion, or RMB6.07 per American depositary share, compared with a loss of RMB5.5 billion, or RMB1.99 per ADS, in the year-earlier period. Alibaba noted that the loss reflected decreases in the market prices of its equity investments in public companies, which aren’t included in the company’s adjusted metrics.

After adjustments, Alibaba earned RMB7.95 per ADS, down from RMB10.32 a year before but above the FactSet consensus, which called for RMB7.10 per ADS.

While the company traditionally offers financial guidance to kick off a new fiscal year, Alibaba declined to do so this time around, citing uncertainty brought upon by the pandemic.

“Since mid-March 2022, our domestic businesses have been significantly affected by the COVID-19 resurgence in China, particularly in Shanghai,” Alibaba said in its press release. “Considering the risks and uncertainties arising from COVID-19, which we are not able to control and are difficult for us to predict, we believe it is prudent at this time not to give financial guidance as we typically do at the start of the fiscal year.”

Alibaba added that it expects to “continue to generate strong operating cash flow to maintain strategic flexibility as we calibrate our operations against changing economic and competitive circumstances.”

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