Alibaba Profit Beats Estimates on Cost Cuts

_{Source: Predictions based on analysts' consensus from Visible Alpha} 

Alibaba Financial Results: Analysis

Alibaba Group Holdings Ltd. (BABA) shares rose more than 9% in U.S. trading, extended their rebound in the past week from six-year lows, after the Chinese ecommerce giant posted a profit increase that beat estimates amid cost-cutting, even as China's economic slowdown and COVID-19 restrictions reined in revenue growth.

Alibaba executives expressed optimism about easing pandemic restrictions and the company's board increased the authorization for stock buybacks.

Alibaba earned an adjusted 12.92 yuan ($1.82) per U.S.-traded ADS for its September quarter, up 15% year-over-year. Analysts tracked by Visible Alpha estimated 11.23 yuan, on average. Revenue increased 3%, trailing expectations of 4% as well as annual growth rates typically exceeding 20% before a slowdown in the past year. Alibaba posted a net loss of 22.5 billion yuan ($3.2 billion) including share-based compensation, investment losses, and asset impairments.

"We delivered a solid quarter in a macro environment full of uncertainty," CEO Daniel Zhang said on a conference call. "The ongoing resurgence of COVID-19, geopolitical tension, inflation, and currency depreciation: the convergence of all these forces created considerable difficulties for business operations."

The company didn't provide profit or sales guidance for the current quarter.

Regulatory Pressure Easing

In October and the first half of November, almost 15% of China's delivery areas were under pandemic restrictions that disrupted logistics, Zhang said. "But recently, we are seeing improvements," he added. Chinese authorities have recently taken tentative steps to ease the country's strict quarantine policies.

In the latest sign China's protracted regulatory crackdown on large Chinese technology companies may be easing, Zhang said Alibaba noted "proactive commentary from relevant government regulators about promoting the digital economy and high-quality development of platform businesses."

Aggressive Share Buybacks to Continue

Alibaba spent $2.1 billion on ADS repurchases during the recent quarter, and another $2.6 billion in the current period, leaving it with $22 billion for share repurchases through early 2025 after the board added $15 billion to the authorization.

In the first half of its fiscal year, Alibaba spent $5.6 billion, or 70% of its cash flow, on share repurchases in light of "current market conditions and given the confidence we have in the long-term sustainability of our business," according to CFO Toby Xu.