Market Impact of Alibaba's First Earnings Report
Alibaba Investors Cheer Revenue Growth, ETFs to Benefit by Zacks Investment Research
Chinese e-commerce giant Alibaba Group (BABA) released its first quarterly earnings report yesterday since going public in September. While revenue performance was encouraging, profitability was a disappointment.
Earnings came in at 25 cents, missing the Zacks Consensus Estimate of 37 cents. Profitability was hampered by investments in mobile, marketing and other new ventures as well as by the integration cost for newly acquired businesses such as UCWeb and AutoNavi.
Revenue nevertheless jumped 53.7% year over year to $2.74 billion, easily crushing our estimate of $2.60 billion. The annual revenue growth rate is much higher than the U.S. online e-commerce behemoth Amazon (AMZN), which reported a 20% increase for the same quarter. Robust growth was driven by an increase in mobile phone users.
Mobile revenue came in at $606 million, up more than 10 times from the prior year period and accounted for 22% of total revenues. Mobile monthly active users rose 138.5% year over year to 217 million during the quarter.
Market Impact
Investors welcomed Alibaba's accelerating revenue growth by overlooking the decelerating earnings growth and shrinking profit margin. As a result, the shares of BABA climbed as much as 4.5% to the new highs on the day on double volumes than normal.
This trend is likely to continue at least in the near term as investors are betting on Alibaba's robust growth in the coming years. This is because most of the analysts revised their target prices upward on the stock, suggesting optimism into the company's growth story. Notably, the company occupies 80% of the Internet e-commerce market in China. Further, the stock currently has a Zacks Rank #3 (Hold) and has a solid industry Zacks Rank in the top 28%, suggesting some upside in the coming days.
Given this, ETFs having large allocations to this new e-commerce giant are in focus and could be a great plays for investors with lesser risk. Below, we have highlighted some of them:
Renaissance IPO ETF (IPO)
This ETF follows the Renaissance IPO Index, which holds the largest and most liquid newly listed U.S. initial public offerings. Currently, the product holds 75 securities and BABA takes the top spot in the basket with a hefty 11.36% of assets. From a sector look, technology stocks make up for more than one-fourth share while health care, financials, and oil & gas round off the top four with double-digit exposure.
The fund has attracted $27.7 million in its asset base and sees a paltry volume of about 18,000 shares per day on average. Expense ratio came in at 0.60%. The product has gained nearly 6% in the year-to-date time frame.
KraneShares CSI China Internet Fund (KWEB)
This product provides concentrated exposure to the Chinese Internet market by tracking the CSI China Overseas Internet Index. In total, the fund holds 44 securities in its basket with Alibaba occupying the top position at nearly 11%.
The ETF has amassed $113.4 million in AUM and charges 68 bps in annual fees from investors. Volume is moderate as it exchanges 76,000 shares in hand per day. The product has surged 10.8% so far this year.
First Trust US IPO Index Fund (FPX)
FPX tracks the IPOX-100 U.S. Index and holds 100 stocks in its basket. Here, Alibaba makes up for the sixth spot with 3.34% allocation. The fund has $517.1 million in AUM and trades in moderate volume of 78,000 shares on average. It charges 60 bps in fees and expenses.
Information technology, consumer discretionary and health care are the top three sectors with 24.1%, 21.8% and 19.1%, respectively. The ETF is up 7.5% in the year-to-date time frame.
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