Alibaba Group Holding Limited (BABA Quick QuoteBABA - Free Report) reported second-quarter fiscal 2022 non-GAAP earnings of $1.74 per ADS (RMB 11.20), which missed the Zacks Consensus Estimate by 6.9%. Further, the figure decreased 38% year over year in RMB terms.

Revenues of RMB 200.7 billion ($31.15 billion) improved 29% from the prior-year quarter’s figure. However, the figure missed the Zacks Consensus Estimate of $31.92 billion.

Top-line growth was driven by the solid momentum across Alibaba’s China commerce retail business, which includes the positive contribution from Sun Art, without which revenues would have exhibited growth of 16%.

Additionally, strength across the cloud computing business and Cainiao logistics services contributed well to top-line growth.

Revenues by Segments

Alibaba has four reportable segments, namely Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives and Others. Details of the segments are discussed below.

Core Commerce (85% of total revenues): The segment comprises marketplaces operating in the retail and wholesale commerce spaces of China as well as international regions, logistic services and consumer services. Revenues for the reported quarter totaled RMB 171.2 billion ($26.6 billion), reflecting an increase of 31% on a year-over-year basis.

China commerce retail (63% of total revenues): The business vertical’s revenues for the reported quarter were RMB 126.83 billion ($19.7 billion), reflecting a year-over-year increase of 33%. Benefits from the Sun Art consolidation were positives. Also, positive contribution from Tmall Supermarket and Freshippo benefited the business.

However, sluggish growth in physical goods GMV at China retail marketplaces due to weak market conditions in the said country hindered growth of customer management revenues.

China commerce wholesale (2% of total revenues): The business generated revenues of RMB 4.2 billion ($648 million), up 15% from the year-ago quarter’s figure. The increase in average revenues from paying members on 1688.com aided revenue growth.

International commerce retail (5% of total revenues): Revenues for the reported quarter were RMB 10.4 billion ($1.6 billion), increasing 33% year over year. The increase was driven by well-performing Lazada and AliExpress.

International commerce wholesale (2% of total revenues): The business generated revenues of RMB 4.7 billion ($732 million), which increased 34% from the prior-year quarter’s level. Growth was attributed to a surge in the average revenues derived from paying members on the alibaba.com platform and revenues generated by cross-border-related value-added services.

Cainiao logistics services (5% of total revenues): The business generated revenues of RMB 9.8 billion ($1.5 billion), up 20% year over year. This upside was led by a spike in the volume of orders recognized from cross-border and international commerce retail businesses.

Local consumer services (5% of total revenues): Revenues grossed RMB 9.5 billion ($1.5 billion), up 8% year over year.

Others (3% of total revenues): Revenues logged RMB 5.72 billion ($888 million), reflecting a 66% year-over-year rise.

Cloud Computing (10% of total revenues): The segment generated revenues of RMB 20.01 billion ($3.1 billion), up 33% from the year-ago figure, aided by increasing revenues from customers in the Internet, retail and finance industries.

Digital Media and Entertainment (4% of total revenues): The segment yielded revenues of RMB 8.1 billion ($1.25 billion), inching up 0.2% on a year-over-year basis.

Innovation Initiatives and Others (1% of total revenues): Revenues from the segment were RMB 1.4 billion ($223 million), up 37% year over year.

Operating Details

In the fiscal second quarter, sales and marketing expenses were RMB 28.9 billion ($4.5 billion), up 3% year over year. As a percentage of total revenues, the figure expanded 300 basis points (bps) year over year to 14%.

General and administrative expenses were RMB 8.9 billion ($1.4 billion), down 3% from the year-ago quarter’s level. The figure contracted 300 bps year over year to 5% as a percentage of revenues.

Operating income was RMB 15.01 billion ($2.3 billion), up 10% from the year-ago quarter’s level. However, the operating margin contracted 200 bps to 7%.

Adjusted EBITDA decreased 27% year over year to RMB 34.8 billion ($5.4 billion).

Balance Sheet & Cash Flow

As of Sep 30, 2021, cash and cash equivalents were $42.2 billion (RMB 272.2 billion), down from $45.2 billion (RMB 291.8 billion) as of Jun 30, 2021.

Short-term investments totaled $26.6 billion (RMB 171.2 billion) at the end of the fiscal second quarter, down from $27.7 billion (RMB 179.01 billion) at the end of the fiscal first quarter.

Alibaba generated $5.6 billion (RMB 35.8 billion) of cash from operations in the reported quarter compared with $5.2 billion (RMB 33.6 billion) in the previous quarter.

Baba’s free cash flow was $3.4 billion (RMB 22.2 billion).

Guidance

For fiscal 2022, Alibaba expects revenues to grow in the range of 20-23% year over year.

Zacks Rank & Stocks to Consider

Currently, Alibaba carries a Zacks Rank #3 (Hold).

AutoNation (AN Quick QuoteAN - Free Report) , Penske Automotive Group (PAG Quick QuotePAG - Free Report) and Costco Wholesale (COST Quick QuoteCOST - Free Report) are some better-ranked stocks in the broader Retail-Wholesale sector. While AutoNation sports a Zacks Rank #1 (Strong Buy) at present, Penske Automotive and Costco carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AutoNation has gained 73.2% on a year-to-date basis. The long-term earnings growth rate for the stock is currently projected at 19.08%.

Penske Automotive has jumped 67.6% on a year-to-date basis. The long-term earnings growth rate is currently projected at 14.82%.

Costco has rallied 40.5% on a year-to-date basis. The long-term earnings growth rate is currently projected at 8.65%.