Alibaba Earnings Rise as Browsers Become Buyers

Alibaba Group Holding Ltd. (NYSE: BABA) reported fiscal third-quarter 2016 results before markets opened Thursday. The China-based Internet giant posted adjusted diluted earnings per American depositary share (ADS) of $0.99 on revenues of $5.33 billion. Third-quarter results compare to the consensus estimates for of $0.88 per ADS on revenues of $5.07 billion. One ADS is equal to one ordinary share, and the exchange rate used is based on 6.58 yuan per dollar.

Quarterly gross merchandise value (GMV) rose 23% to $149 billion year over year. GMV is the total value of sales transacted on Alibaba’s websites. Mobile GMV rose 99% year over year to $101 billion.

The number of active buyers on Alibaba’s retail marketplaces totaled 407 million at the end of December, up from 386 million at the end of the prior quarter. Mobile active users rose from 346 million at the end of last September to 393 million at the end of December. Mobile revenue from the China commerce retail business rose 192% to $2.89 billion, or 65% of the company’s total China commerce retail business.

The company’s monetization rate rose from 2.7% in the third quarter of fiscal 2015 to 2.98%. The mobile monetization rate rose from 1.96% to 2.88% in the same period.

Net income rose 108% year over year in the quarter to $1.92 billion, including a gain from the sale of Alibaba’s movie-related businesses to Alibaba Pictures. The overall cost of revenue rose to 32% of revenue compared with 29% in the year-ago quarter.
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The company’s chief financial officer, Maggie Wu, said:

We had excellent results this quarter. We achieved impressive revenue growth as we are increasingly monetizing the user activity on our marketplaces, particularly on mobile devices. … Meanwhile, we generated strong free cash flow of US$3.7 billion this quarter. The fundamental strength of our core business gives us the confidence to invest in our strategic priorities.

Alibaba did not provide a forecast in its press release. Analysts expect earnings per ADS of $0.55 on revenues of $3.2 billion in the company’s fourth fiscal quarter of 2016. For the full fiscal year ending in March, consensus estimates call for earnings per ADS of $2.55 on revenues of $14.99 billion.

Alibaba’s ADSs traded up nearly 4% in Thursday’s premarket session at $72.26 in a 52-week range of $57.20 to $95.06. The consensus price target from Thomson Reuters was $95.46 a share before Thursday’s announcement. The high price target estimate is $117.