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Alibaba Q2 Earnings Miss Estimates, Revenues Improve Y/Y
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Alibaba (BABA - Free Report) shares were slightly up at pre-market trading on Nov. 18, following the second-quarter fiscal 2025 results. BABA shares have returned 14.3% compared with the Zacks Retail-Wholesale sector’s appreciation of 23% in the year-to-date period.
BABA reported non-GAAP earnings of $2.15 per ADS, which missed the Zacks Consensus Estimate by 4.87%.
BABA’s earnings lagged the Zacks Consensus Estimate in two of the trailing four quarters, beating in the remaining two, the average earnings surprise being 2.14%.
The top-line increase was driven by improved monetization of Taobao and Tmall Group, which included GMV-based service charges and merchant adoption of Quanzhantui, Alibaba’s marketing tool. Strength across the cloud business, driven by public cloud products and AI-integrated products, contributed well.
Revenues by Segments
Taobao and Tmall Group (41.86% of Total Revenues): Alibaba generated RMB 98.9 billion ($14.1 billion) of revenues from the segment, which increased 1% from the year-ago quarter’s figure.
China Commerce Retail (93.95% of the Taobao and Tmall revenues): The business vertical’s revenues were RMB 93.008 billion ($13.25 billion), reflecting a 0.48% increase from the year-ago quarter. The increase was attributed to customer management revenues, which increased 2% year over year to RMB 70.36 billion ($10.02 billion) due to online GMV growth, partially offset by the decline in direct sales and other revenues, which were down 5% year over year to RMB 22.64 billion ($3.2 billion) due to declining sales of consumer electronics and appliances.
China Commerce Wholesale (6.04% of the Taobao and Tmall revenues): The business generated revenues of RMB 5.98 billion ($853 million), which grew 17.5% on a year-over-year basis. This upside was attributed to increasing revenues from value-added services.
During the second quarter of fiscal 2025, BABA made strategic investments to enhance user experience. Starting Sept. 1, a software service fee based on the GMV of the transaction was implemented, and the annual service fee for Tmall merchants was canceled.
Alibaba International Digital Commerce Group (25.78% of Total Revenues): The segment comprises Lazada, AliExpress, Trendyol, and other businesses operating in the international retail and wholesale markets. Alibaba generated RMB 31.67 billion ($4.51 billion) in revenues from the segment, which grew 29% from the year-ago quarter.
International Commerce Retail (80.9% of International Revenues): Revenues were RMB 25.61 billion ($3.6 billion), up 35% from the year-ago quarter’s figure, owing to the strong momentum in AliExpress’ Choice and Trendyol.
International Commerce Wholesale (19.1% of International Revenues): The business generated revenues of RMB 6.05 billion ($863 million), which increased 9% on a year-over-year basis. Strength in cross-border-related value-added services contributed well.
During the second quarter of fiscal 2025, Alibaba launched the AliExpressDirect model to expand product offerings and drive fulfillment efficiency.
Local Services Group (7.49% of Total Revenues): The segment’s revenues grossed RMB 17.72 billion ($2.52 billion), up 13.8% from the year-ago quarter. The rise was driven by strong order growth in the Ele.me and Amap businesses.
Cainiao Smart Logistics Network (10.42% of Total Revenues): Revenues were RMB 24.64 billion ($3.5 billion), up 8% from the year-ago quarter. The upside was led by solid momentum across cross-border fulfillment solutions.
Cloud Intelligence Group (12.52% of Total Revenues): The segment generated revenues of RMB 29.61 billion ($4.21 billion), up 7.1% from the year-ago quarter. This was attributed to strength in public cloud products, including AI-related solutions.
However, weak momentum in non-public cloud products was a concern.
During the second quarter of fiscal 2025, BABA launched upgraded cloud offerings like Qwen Large Model Family upgrades. Further, AI-integrated Qwen models and AI infrastructure upgrades across BABA products were also note-worthy.
Digital Media and Entertainment Group (2.41% of Total Revenues): Revenues were RMB 5.69 billion ($811 million), down 1.47% from the year-ago quarter’s figure.
All Others (22.06% of Total Revenues): The segment’s revenues were RMB 52.17 billion ($7.4 billion), up 8.59% from the year-ago quarter.
Operating Details
In the fiscal second quarter, sales and marketing expenses were RMB 32.47 billion ($4.62 billion), up 27.43% from the year-ago quarter. As a percentage of total revenues, the figure expanded 239 basis points (bps) to 13.73%.
General and administrative expenses were RMB 9.77 billion ($1.39 billion), up 3.85% from the year-ago quarter. As a percentage of total revenues, the figure contracted 5 bps year over year to 4.13%.
Product development expenses were RMB 14.18 billion ($2.02 billion), down 0.21% from the year-ago quarter. As a percentage of total revenues, the figure contracted 33 bps year over year to 6%.
The operating income was RMB 35.24 billion ($5.02 billion), up 4.95% year over year. The operating margin was 14.9% in the fiscal second quarter, which contracted 4 bps from the year-ago quarter.
Adjusted EBITDA decreased 5.33% from the year-ago quarter to RMB 40.56 billion ($5.78 billion).
Balance Sheet & Cash Flow
As of Sept. 30, 2024, cash and cash equivalents were $26.076 billion (RMB 182.99 billion), down from $34.4 billion (RMB 248.1 billion) as of March 31, 2024.
Short-term investments totaled $22.16 billion (RMB 155.5 billion) at the end of the second quarter of fiscal 2025, down from $36.4 billion (RMB 262.96 billion) at the end of fourth-quarter fiscal 2024.
Alibaba generated $4.48 billion (RMB 31.43 billion) in cash from operations, up from $4.63 billion (RMB 33.64 billion) in the previous quarter.
BABA’s free cash flow was $1.95 billion (RMB 13.73 billion).
Zacks Rank & Other Stocks to Consider
Alibaba currently sports a Zacks Rank #1 (Strong Buy).
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Alibaba Q2 Earnings Miss Estimates, Revenues Improve Y/Y
Alibaba (BABA - Free Report) shares were slightly up at pre-market trading on Nov. 18, following the second-quarter fiscal 2025 results. BABA shares have returned 14.3% compared with the Zacks Retail-Wholesale sector’s appreciation of 23% in the year-to-date period.
BABA reported non-GAAP earnings of $2.15 per ADS, which missed the Zacks Consensus Estimate by 4.87%.
BABA’s earnings lagged the Zacks Consensus Estimate in two of the trailing four quarters, beating in the remaining two, the average earnings surprise being 2.14%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
In domestic currency, Alibaba reported earnings of RMB 15.06, down 4% year over year.
Revenues of $33.7 billion beat the Zacks Consensus Estimate by 0.69%. In domestic currency, revenues of RMB 236.5 billion increased 5% year over year.
Alibaba Group Holding Limited Price, Consensus and EPS Surprise
Alibaba Group Holding Limited price-consensus-eps-surprise-chart | Alibaba Group Holding Limited Quote
The top-line increase was driven by improved monetization of Taobao and Tmall Group, which included GMV-based service charges and merchant adoption of Quanzhantui, Alibaba’s marketing tool. Strength across the cloud business, driven by public cloud products and AI-integrated products, contributed well.
Revenues by Segments
Taobao and Tmall Group (41.86% of Total Revenues): Alibaba generated RMB 98.9 billion ($14.1 billion) of revenues from the segment, which increased 1% from the year-ago quarter’s figure.
China Commerce Retail (93.95% of the Taobao and Tmall revenues): The business vertical’s revenues were RMB 93.008 billion ($13.25 billion), reflecting a 0.48% increase from the year-ago quarter. The increase was attributed to customer management revenues, which increased 2% year over year to RMB 70.36 billion ($10.02 billion) due to online GMV growth, partially offset by the decline in direct sales and other revenues, which were down 5% year over year to RMB 22.64 billion ($3.2 billion) due to declining sales of consumer electronics and appliances.
China Commerce Wholesale (6.04% of the Taobao and Tmall revenues): The business generated revenues of RMB 5.98 billion ($853 million), which grew 17.5% on a year-over-year basis. This upside was attributed to increasing revenues from value-added services.
During the second quarter of fiscal 2025, BABA made strategic investments to enhance user experience. Starting Sept. 1, a software service fee based on the GMV of the transaction was implemented, and the annual service fee for Tmall merchants was canceled.
Alibaba International Digital Commerce Group (25.78% of Total Revenues): The segment comprises Lazada, AliExpress, Trendyol, and other businesses operating in the international retail and wholesale markets. Alibaba generated RMB 31.67 billion ($4.51 billion) in revenues from the segment, which grew 29% from the year-ago quarter.
International Commerce Retail (80.9% of International Revenues): Revenues were RMB 25.61 billion ($3.6 billion), up 35% from the year-ago quarter’s figure, owing to the strong momentum in AliExpress’ Choice and Trendyol.
International Commerce Wholesale (19.1% of International Revenues): The business generated revenues of RMB 6.05 billion ($863 million), which increased 9% on a year-over-year basis. Strength in cross-border-related value-added services contributed well.
During the second quarter of fiscal 2025, Alibaba launched the AliExpressDirect model to expand product offerings and drive fulfillment efficiency.
Local Services Group (7.49% of Total Revenues): The segment’s revenues grossed RMB 17.72 billion ($2.52 billion), up 13.8% from the year-ago quarter. The rise was driven by strong order growth in the Ele.me and Amap businesses.
Cainiao Smart Logistics Network (10.42% of Total Revenues): Revenues were RMB 24.64 billion ($3.5 billion), up 8% from the year-ago quarter. The upside was led by solid momentum across cross-border fulfillment solutions.
Cloud Intelligence Group (12.52% of Total Revenues): The segment generated revenues of RMB 29.61 billion ($4.21 billion), up 7.1% from the year-ago quarter. This was attributed to strength in public cloud products, including AI-related solutions.
However, weak momentum in non-public cloud products was a concern.
During the second quarter of fiscal 2025, BABA launched upgraded cloud offerings like Qwen Large Model Family upgrades. Further, AI-integrated Qwen models and AI infrastructure upgrades across BABA products were also note-worthy.
Digital Media and Entertainment Group (2.41% of Total Revenues): Revenues were RMB 5.69 billion ($811 million), down 1.47% from the year-ago quarter’s figure.
All Others (22.06% of Total Revenues): The segment’s revenues were RMB 52.17 billion ($7.4 billion), up 8.59% from the year-ago quarter.
Operating Details
In the fiscal second quarter, sales and marketing expenses were RMB 32.47 billion ($4.62 billion), up 27.43% from the year-ago quarter. As a percentage of total revenues, the figure expanded 239 basis points (bps) to 13.73%.
General and administrative expenses were RMB 9.77 billion ($1.39 billion), up 3.85% from the year-ago quarter. As a percentage of total revenues, the figure contracted 5 bps year over year to 4.13%.
Product development expenses were RMB 14.18 billion ($2.02 billion), down 0.21% from the year-ago quarter. As a percentage of total revenues, the figure contracted 33 bps year over year to 6%.
The operating income was RMB 35.24 billion ($5.02 billion), up 4.95% year over year. The operating margin was 14.9% in the fiscal second quarter, which contracted 4 bps from the year-ago quarter.
Adjusted EBITDA decreased 5.33% from the year-ago quarter to RMB 40.56 billion ($5.78 billion).
Balance Sheet & Cash Flow
As of Sept. 30, 2024, cash and cash equivalents were $26.076 billion (RMB 182.99 billion), down from $34.4 billion (RMB 248.1 billion) as of March 31, 2024.
Short-term investments totaled $22.16 billion (RMB 155.5 billion) at the end of the second quarter of fiscal 2025, down from $36.4 billion (RMB 262.96 billion) at the end of fourth-quarter fiscal 2024.
Alibaba generated $4.48 billion (RMB 31.43 billion) in cash from operations, up from $4.63 billion (RMB 33.64 billion) in the previous quarter.
BABA’s free cash flow was $1.95 billion (RMB 13.73 billion).
Zacks Rank & Other Stocks to Consider
Alibaba currently sports a Zacks Rank #1 (Strong Buy).
Some other top-ranked stocks in the broader Retail-Wholesale sector are Deckers Outdoor (DECK - Free Report) , Brinker International (EAT - Free Report) , and Sprouts Farmers Market (SFM - Free Report) , each sporting a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Deckers Outdoor shares gained 57.7% in the year-to-date period. The long-term earnings growth rate for DECK is projected at 13%.
Brinker International shares gained 172% in the year-to-date period. The long-term earnings growth rate for EAT is projected at 16.4%.
Sprouts Farmers Market shares gained 195.2% in the year-to-date period. The long-term earnings growth rate for SFM is projected at 18%.