Alibaba Group Holding Limited (BABA Quick QuoteBABA - Free Report) reported third-quarter fiscal 2022 non-GAAP earnings of $2.65 per ADS (RMB 16.87), which surpassed the Zacks Consensus Estimate by 9.9%. Notably, the figure decreased 23% year over year in RMB terms.

Revenues of RMB 242.6 billion ($38.1 billion) improved 10% from the prior-year quarter. Further, the top-line figure beat the Zacks Consensus Estimate of $37.9 billion.

Top-line growth was driven by the solid momentum across Alibaba’s China commerce and International commerce businesses.

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

Revenues by Segments

China Commerce (71% of total revenues): The segment comprises marketplaces operating in the retail and wholesale commerce markets of China. The company generated RMB 172.23 billion ($27.03 billion) of revenues from the segment, which rose 7% year over year.

China commerce retail (69% of total revenues): The business vertical’s revenues for the reported quarter were RMB 167.99 billion ($26.4 billion), reflecting a year-over-year increase of 7%. Positive contributions from Sun Art, Tmall Supermarket and Freshippo benefited the business.

However, sluggish growth in online physical goods GMV on Taobao and Tmall marketplaces, which led to a decline in customer management revenues was a concern.

China commerce wholesale (2% of total revenues): The business generated revenues of RMB 4.2 billion ($664 million), up 10% from the year-ago quarter. The increase in spending revenues by paying members on 1688.com aided revenue growth.

International Commerce (7% of total revenues): The segment comprises marketplaces operating in the international retail and wholesale commerce markets. The company generated RMB 16.45 billion ($2.6 billion) of revenues from the segment, which grew 18% year over year.

International commerce retail (5% of total revenues): Revenues for the reported quarter were RMB 11.61 billion ($1.8 billion), increasing 14% year over year. The increase was driven by well-performing Lazada.

However, the company witnessed sluggish growth in Trendyol, which was concerning. Also, it faced decreasing AliExpress orders in Europe.

International commerce wholesale (2% of total revenues): The business generated revenues of RMB 4.8 billion ($760 million), which increased 29% from the prior-year quarter’s level. Growth was attributed to a surge in the number of paying members on the Alibaba.com platform and revenues generated by cross-border-related value-added services.

Local consumer services (5% of total revenues): Revenues grossed RMB 12.1 billion ($1.91 billion), up 27% year over year. This was driven by solid growth in order volume.

Cainiao logistics services (5% of total revenues): The business generated revenues of RMB 13.1 billion ($2.05 billion), up 15% year over year. The upside was led by strong momentum across cross-border and international commerce retail businesses. Also, growing value-added services’ revenues contributed well.

Cloud Computing (8% of total revenues): The segment generated revenues of RMB 19.54 billion ($3.1 billion), up 20% from the year-ago figure, aided by solid momentum across finance and telecommunication industries.

However, the company witnessed weakness in the Internet industry as there was slowing demand from customers in the online entertainment and education fields.

Digital Media and Entertainment (3% of total revenues): The segment yielded revenues of RMB 8.1 billion ($1.3 billion), inching up 0.4% on a year-over-year basis.

Innovation Initiatives and Others (1% of total revenues): Revenues from the segment were RMB 1.03 billion ($163 million), up 63% year over year.

Operating Details

In the fiscal third quarter, sales and marketing expenses were RMB 36.7 billion ($5.8 billion), up 4% year over year. As a percentage of total revenues, the figure expanded 400 basis points (bps) year over year to 15%.

General and administrative expenses were RMB 8.5 billion ($1.3 billion), down 2.6% from the year-ago quarter’s level. The figure contracted 40 bps year over year to 3.5% as a percentage of revenues.

Operating income was RMB 7.1 billion ($1.1 billion), down 86% from the year-ago quarter’s level. Further, the operating margin contracted significantly from 22% in the prior-year quarter to 3% in the reported quarter.

Adjusted EBITDA decreased 25% year over year to RMB 51.4 billion ($8.1 billion).

Balance Sheet & Cash Flow

As of Dec 31, 2021, cash and cash equivalents were $45.99 billion (RMB 293.1 billion), up from $42.2 billion (RMB 272.2 billion) as of Sep 30, 2021.

Short-term investments totaled $29.1 billion (RMB 185.4 billion) at the end of the fiscal third quarter, up from $26.6 billion (RMB 171.2 billion) at the end of the fiscal second quarter.

Alibaba generated $12.6 billion (RMB 80.4 billion) of cash from operations in the reported quarter, up from $5.6 billion (RMB 35.8 billion) in the previous quarter.

Baba’s free cash flow was $11.1 billion (RMB 71.02 billion).

The company repurchased 10.1 million of its ADSs (equivalent to 80.7 million of its ordinary shares) worth $1.4 billion.

Zacks Rank & Stocks to Consider

Currently, Alibaba carries a Zacks Rank #5 (Strong Sell).

Some better-ranked companies in the retail-wholesale sector are AutoNation (AN Quick QuoteAN - Free Report) , Asbury Automotive Group (ABG Quick QuoteABG - Free Report) and Dollar Tree (DLTR Quick QuoteDLTR - Free Report) . While AutoNation and Asbury Automotive currently sport a Zacks Rank #1 (Strong Buy), Dollar Tree carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AutoNation has gained 37.8% over a year. The long-term earnings growth rate for AN is currently projected at 23.55%.

Asbury Automotive has gained 9.3% over a year. The long-term earnings growth rate for ABG is currently projected at 18.52%. 

Dollar Tree has gained 37.7% over a year. The long-term earnings growth rate for DLTR is currently projected at 12.18%.