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Alibaba stock gains on Q1 sales and earnings beat

Alibaba (NYSE: BABA) stock inched up above 3% in the pre-market trading hours after the e-commerce giant reported better-than-expected first quarter results. As expected, revenue growth tapered off compared to last quarter, while adjusted earnings growth improved sequentially. Shares of the firm has increased 19% this year, but has dropped 6% in the last 12 months.

Revenue for the first quarter jumped 42% to $16.74 billion while adjusted earnings per ADS soared 56% to $1.83 per share. When it comes to top line drivers, core commerce and cloud business continued the momentum from prior quarter followed by the innovation and others division. Analysts were anticipating revenue of $15.82 billion and adjusted earnings per ADS of $1.46.

Commenting on the Q1 performance, CEO Daniel Zhang said, “We will continue to expand our customer base, increase operating efficiency and deliver robust growth.”

Zhang also added, “With strong cash flow from our core commerce business, we will continue to invest in technology and bring digital transformation to millions of businesses globally.”

Alibaba Q1 2020 earnings results

Segment Update

On the key segments performance, core commerce brought in 87% of revenues in the first quarter. The segment revenues rose 44% over prior year aided by subscriber growth and increased spending from the platform. Cloud computing division saw 66% jump in revenues driven by improved average revenue per customer.

Alibaba has been investing in improving the logistics especially in Hema supermarkets and food delivery business Ele.me.

Tmall and Taobao shopping platforms is the biggest money spinners to the core commerce division. Through its Singapore-based Lazada platform it has been expanding globally and improving the penetration into smaller cities.

Key Metrics Performance

Active consumers in the Chinese market rose 17% to 674 million over last year. The company added 20 million users over prior quarter. Alibaba added 34 million mobile monthly active users (MAU) sequentially. MAUs rose 19% to 755 million over prior year.

Operating cash flow was down 4% due to dip in royalty and service fee from Ant Financial and $250 million lawsuit settlement in the US. Free cash flow remained flat at $3.84 billion helped by reduced spending to purchase licensed content.

Since the company plans to continue its investments in beefing up the cloud business and other emerging businesses, margins are going to be under pressure. However, the company believes these initiatives are going to bear fruit in the near future bringing in sustainable revenues.

Looking Ahead

For the second quarter, the street is anticipating top line of $16.29 billion and adjusted earnings of $1.41 per share.

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