What happened
Shares of Alibaba Group Holding (BABA 3.50%) were moving higher today, a day after the Chinese tech giant delivered a strong quarterly earnings report. Today, the company benefited from a chorus of positive analyst notes as well as news of detente between the Chinese government and Ant Group, Alibaba's former financial arm in which it owns a one-third stake.
The stock closed up 3.5% after gaining as much as 5.4% earlier in the session.
Image source: Alibaba.
So what
Revenue jumped 37% to $33.9 billion in the quarter ended Dec. 31, 2020, ahead of estimates at $33.4 billion. Adjusted EBITDA rose 22% to $10.4 billion and adjusted earnings per share increased 21% to $3.38, also topping expectations for $3.25.
Alibaba shares pulled back yesterday, but today five analysts lifted their price targets on the stock, maintaining buy ratings and showing overall approval for the third-quarter results.
Investors also seemed to cheer the news that Ant Group had reached an agreement with Chinese regulators to turn Ant Group from a fintech company into a financial holding company. That could pave the wave for Ant Group's IPO, which was blocked by Chinese regulators in November. Ant was expected to fetch a valuation of $280 billion, leading to a payday for Alibaba that would make its stake worth nearly $100 billion. That valuation could be affected by any changes to the company to comply with regulations, including adding more stringent capital requirements, but the news is clearly a step forward for Ant Group. Alibaba's Hong Kong shares jumped when the announcement came out.
Now what
Management didn't provide guidance in the earnings report, saying it would give guidance for the upcoming fiscal year in its next report. However, there's little reason to doubt the company's momentum. Active customers rose by 22 million in the quarter to 779 million and it saw strong growth in cloud, with revenue up 50%, and logistics, where its Cainiao Network delivered 51% revenue growth, showing the company diversifying beyond e-commerce.
Alibaba has faced controversy in recent months around the Ant IPO, an antitrust investigation, and reports that founder Jack Ma had been "missing," but the Ant news shows an apparent thaw in its relationship with Chinese authorities. Considering its growth rate and its price-to-earnings ratio at just 27, the stock looks like one of the best bargains on the market right now.
