Alibaba today reported its quarterly results. While headlines may scream “revenues missed,” the company beat analyst predictions otherwise. Alibaba raised its stock buyback by $10B to $15B because the company is “confident in our long-term success prospects.” The company has bought $3.7B US stock from April 1, 2021. We knew Alibaba is investing in growing its business, curtail margins as capital expenditures/expenses would increase. The management made sure it did not affect net income and EPS.
To drive future growth, the company is not only buying back stock but also investing in it. This is a massive sign because sentiment has weighed heavily on China’s internet market despite solid fundamentals. Should we not invest in our own companies if they are investing in us? This is another example: Headcount grew to 254,702 in the fourth quarter, compared with 251,462 in the last quarter.
The earnings call’s Q&A session was all about regulation. Alibaba has consistently stated that it will adhere to the rules. Daniel Zhang, chairman and CEO of Alibaba, said that the company would stick to regulations “strictly and fully.”
- Revenue rose +35% to RMB205.74B ($31.865B), against analyst estimates of RMB 209.38B and RMB 153.751B last year.
- Global users increased +45mm quarter-over-quarter to 1.18B. China users increased +21mm quarter by quarter to 912mm.
- Highlight from Revenue Breakdown: China commerce retailers, 66%, +34% to RMB 13.5.806B versus the last year’s quarterly result (101.321B).
- From RMB 133.318, the last year’s total commerce, 87%, saw a 35% increase to RMB 180.241B.
- Cloud computing, 8 percent of revenue, +29%, RMB 16.051B, compared to RMB12.437B in the last quarter
- Adjusted EBITDA decreased -5% to $7.532B/RMB48.628B against analyst expectations at RMB 48.628B. This is compared to last year’s quarterly results of RMB 51.039B.
- The adjusted EBITDA margin of 24% was higher than the 33% reported in last year’s quarter.
- Adjusted net income rose 10% to $6.728/RMB 43.41B, in contrast with analyst expectations at RMB 38.824B last year and RMB 39.373B the previous year.
- The adjusted EPS was $2.57/RMB 16,60, which is in line with analyst expectations of RMB 14,45
Key News
Asian equities were mixed. Southeast Asia outperformed North Asia, while North Asia was essentially off.
Online gaming stocks fell after a negative article called gaming “spiritual heroin,” and NetEase was renamed “electronic drugs.” Even though the article was online, it had an impact on online gaming stocks. Tencent (700HK) closed at -10.82% after closing at -6.1%. NetEase Hong Kong (9999HK) closed down -7.77%, while NetEase HK (9999HK) closed down -7.77% below the intraday low of 15.68%. Tencent reported that it would limit the hours children under 12 can play games from 1 1/2 to an hour. Analysts claim that the revenue generated by children under 12 years of age is negligible.
We mentioned last week that Hong Kong has a vast structured product market. The locals call these warrants. Banks create structured products to give investors stock exposure but provide principal protection via the stock’s options. Structured products are often written so that once a price level has been reached, the product can be liquidated. This increases the pressure on the stock as the bank removes its hedge.
Tencent’s and NetEase were likely to be exacerbated by the liquidation of structured products. However, the timing of the new regulation headlines is poor. You must note that today’s Mainland market was down. Due to regulations concerns, the Mainland stock market and the economy suffered a decline last week. There was an increase in Mainland financial media articles highlighting this fact. We hope today’s market action will be acknowledged. Even more critical, regulation can potentially hurt the real economy as foreign businesses hesitate to invest in factories and their China operations.
The Mainland markets were weak, but healthcare was better than the rest due to Delta variant fear. The news that autos and semis will be investigating the increasing price of cars and their shortages of auto chips was weak. Semis’ inattention to the information dragged the STAR Board and the EV ecosystem lower. As the broader market held firm, today’s advancers defeated decliners from Shanghai and Shenzhen.
H-Share Update
The Hang Seng bounced about the room, ending at close -0.16% @ 26,194 as volume rose +21.95% from yesterday. That’s 122% above the 1-year average. The 208 Chinese companies listed in Hong Kong within the MSCI China All Shares declined -0.51% with healthcare +3%, staples +1.96%, Utilities +1.64%, industrials +1.47%, and financials +0.78% while communication -5.95%, materials -2.14%, energy -0.58% and energy -0.23%. Tencent -6.11%; Meituan –2.04%; Alibaba HK +0.83%; BYD +0.31%; Geely Auto (+0.37%); MSCI a data-vars/event-label=”ticker/MSCI”> dropped -0.51%. Materials -5.95%, SMIC -5.91%, and energy -0.58% were the top five most traded stocks in Hong Kong. The volumes of Southbound Stock Connect volumes were extremely high. As Southbound trading accounted for 15.9% of Hong Kong turnover, mainland investors sold -$635mm in Hong Kong stocks.
A-Share Update
Shanghai, Shenzhen & STAR Board opened lower but rebounded and closed down -0.47%, -2.211%, and -0.52%, respectively. Volume was down -6.43% yesterday, which is 155% below the 1-year average. The MSCI China, All shares of 522 mainland stocks, were down 0.3%. Healthcare +3.95%, staples (+0.92%) and discretionary (+0.57%), while materials -2.76%, tech -2.63% and energy -1.72%. Communication -1.61%. Industrials -1.05%, real estate, and realty -0.49%. Sany Heavy Industry +5.35%; BYD +3.81%; China Northern Rare Earth (-8.07%); Tianqi lithium -6.97%; broker East Money (+0.61%); Sungrow Power Supply (-10.35%); Kweichow Moutai +0.32%; COSCOShipping (+6.82%); Sanan Optoelectronic =0.39% and Ganfeng Lithium –7.01%. As Northbound trading accounts for 5.3% of mainland turnover, volumes from Northbound Stock Connect were very high. Foreign investors bought $278mm in mainland stocks.
Last Night’s Exchange Rates and Yields.
- CNY/USD 6.46 versus 6.46 Friday
- CNY/EUR 7.68 versus 7.68 Friday
- Yield on 10-Year Government Bonds 2.83% versus 2.2% Friday
- Yield on 10-Year China Development Bank Note 3.21% versus 3.00% Friday
- Copper Price -0.91% overnight
