Was it not enough for Alibaba Group Holding Ltd (NYSE:BABA) investors that the Chinese e-commerce giant served up a strong fiscal third quarter show?
Earnings climbed ahead of consensus forecasts. Revenue rocketed at a rapid-fire 56% growth, jumping to 83.03 billion yuan, or $13.19 billion in U.S. dollars- a far leap from this time last year when BABA scored 53.25 billion. The giant global sales event of the year (an anti-Valentine’s Day BABA hosts each year called Singles’ Day- one that was record-breaking in the last quarter) drove the company’s core commerce business revenue to reach a 57.3% vault forward. The company is even dialing up its annual guide for fiscal 2018. Yet, shares have stumbled close to 6% rather than escalating to the market ceiling today.
The fiscal third quarter beat is not the only buzz drawing the heat from the Street today: Alibaba is buying around one third of its financial affiliate Ant Financial. Could this be a trailblazing move that unlocks an opportunity for an initial public offering (IPO) of the Chinese payments company? Whispers through the grapevine say maybe.
This is a deal where no cash is involved. In exchange for specific intellectual property rights, Alibaba gains an equity stake. Conversely, Ant Financial is wrapping up royalty payments that loomed past $300 million in fiscal 2017. This is not a usual acquisition, and with no cash in sight, investors could be raising eyebrows- and sending shares on a dip.
For rocky context, back in 2011, Alipay first inspired this spinoff by founder Jack Ma- a play that fueled the fire and ire of controversy with Yahoo, a company that owns a lion’s share of BABA.
Yet, this is still a quarter that saw the Chinese e-commerce king hit a home run on many metrics, thanks to a killer core commerce segment that rose 57% year-over-year and a shopping platform that keeps magnetizing new customers. Keep in mind, this matters to Alibaba, as the more customers the company can hook, the more it can sustain its lead in China- a market that sees a constantly changing backdrop for trends as well as commerce inclinations.
Alibaba CEO Daniel Zhang cheers in a release, “Alibaba had another great quarter driven by the continued strength of the Chinese consumer and the wide and innovative range of services we provide for merchants and consumers.”
“We are excited by the continued momentum in new retail, which came to life during another record-breaking 11.11 Global Shopping Festival,” continues Zhang.
Regarding the Ant Financial deal, Zhang explains: “Importantly, an equity stake in Ant Financial enables Alibaba and our shareholders to participate in the future growth of the financial technology sector, as well as the benefits of user growth and improved customer experience.”
The company closed its fiscal third quarter with 7.1 billion yuan of free cash flow with non-GAAP EPS of 10.61 yuan beating out the Street’s 10.50 yuan. Momentum lies in BABA’s favor; the question mark? The Ant Financial move for an equity stake.
TipRanks highlights a strong bullish camp banking on this commerce player. There is a confident majority rating a Buy on Alibaba- all 7 analysts polled in the last 3 months are bullish on the stock. Based on these expectations, the stock’s consensus target price stands at $224.85, suggesting nearly 14% in return potential.