Tomohiro Ohsumi/Bloomberg
Alibaba Group Holdings Ltd. reported earnings and revenue that missed Wall Street’s expectations, and the stock turned lower Thursday, despite the China-based e-commerce giant’s attempts to influence how its results were reported.
The company reported net income attributable to ordinary shareholders that fell 41% to 8.69 billion renminbi (RMB), or RMB 3.30 a share, from RMB 14.68 billion, or RMB 5.65 a share, in the same period a year ago. The company said that, in U.S.-dollar terms, net income was the equivalent of $1.31 billion, with earnings per share of 50 cents.
Alibaba provided “Non-GAAP diluted EPS,” which excludes nonrecurring items, and which reporters typically compare with analyst expectations, of RMB 8.04 — equivalent to $1.22 — up from RMB 7.95 a year ago.
The stock BABA, -3.16% shot up as much as 4.9% soon after the open, before reversing course to slump 0.9% in afternoon trade, with some news services having reported that Alibaba had beaten earnings expectations, even though typical earnings-reporting methods would suggest it did not.
A representative of the company contacted MarketWatch on Thursday morning, explaining why EPS in renminbi terms, rather than in dollar terms, should be compared with analyst estimates.
The spokesperson’s contention was that, since Alibaba and FactSet convert their respective numbers to U.S. dollars using exchange rates taken at different times, comparing the U.S. dollar equivalents would be like comparing apples and oranges. MarketWatch always compares company results with analyst consensus estimates compiled by FactSet.
The Securities and Exchange Commission doesn’t provide a standard guide for earnings releases with regard to earnings in a home currency versus the U.S. dollar. Other companies that report in two currencies include Petrochina Co. Ltd. PTR, -2.95% , BP PLC BP, -0.09% and Brazil’s Petrobras PETR3, -1.36% .
Ironically, the FactSet consensus for non-GAAP EPS in U.S. dollar terms was $1.21, meaning Alibaba would have beaten, but the EPS consensus in renminbi terms was 8.28, which means Alibaba missed expectations.
Alibaba also contacted FactSet to make it aware of the exchange-rate discrepancies, a FactSet representative confirmed. In FactSet’s “surprise history” page, in which FactSet converts the results in an effort to compare apples to apples, the non-GAAP EPS reported by Alibaba was listed as $1.17, which missed the mean analyst estimate of $1.21.
Some news sources reported that Alibaba beat earnings expectations — and it did, if you compare the net EPS numbers to analysts’ GAAP estimates; the FactSet GAAP EPS consensus was RMB 2.42, or 35 cents on a dollar basis. However, earnings reports rarely compare net EPS with analysts’ GAAP estimates when non-GAAP numbers are available, so it’s curious that some publications and news services chose to do so this time around.
The reason non-GAAP numbers are usually compared with analyst estimates is that the majority of companies that provide guidance give non-GAAP guidance, so that’s what analysts have to work with to provide estimates.
In 2017, of the 340 components of the S&P 500 that provided guidance, 277 provided non-GAAP guidance and 220 provided GAAP guidance, according to a report by Audit Analytics. Of those totals, 120 companies gave only non-GAAP guidance, while 63 companies gave only GAAP guidance, the report said.
In Alibaba’s case, 24 analysts provided non-GAAP EPS estimates in renminbi, and 17 analysts provided GAAP EPS estimates.
Meanwhile, Alibaba’s revenue, for which there is no non-GAAP number or comparison, grew 61% to RMB 80.92 billion — or $12.23 billion — and missed the FactSet renminbi consensus of 81.37 billion but beat the dollar estimate of $11.89 billion.
Some news sources reported that revenue in renminbi beat expectations, but that’s because they used different analyst estimate services that had lower consensus revenue numbers.
Separately, Alibaba said it has established a local services company, housing the recently acquired online food-delivery company Ele.me and the local services platform business Koubei, to be capitalized separately with investments from Alibaba, Ant Financial and third-party investors.
The company said that it received $3 billion in new investment commitments from Alibaba and Japan-based Softbank Group Corp. and that it will record a “material one-off revaluation gain” as it consolidates Koubei.
Alibaba’s stock has tumbled 10.4% over the past three months, as concerns over a trade war between the U.S. and China and a slowing Chinese economy weighed on Chinese equities and the renminbi.
In comparison, the iShares China Large-Cap exchange-traded fund FXI, -1.73% has dropped 11.5% over the past three months, while the S&P 500 index SPX, -0.17% gained 4.6%.
In a post-earnings conference call with analysts, Alibaba Executive Vice Chairman Joseph Tsai tried to dispel trade concerns by saying China has become less reliant on exports over the years, so that the Chinese economy can withstand the imposition of tariffs on Chinese products.
Tsai said Alibaba is focused on capturing the Chinese domestic consumption opportunity, growing less reliant on exports. “We believe that Chinese government policy will continue to support imports into China to satisfy the rising demand of Chinese consumers,” Tsai said, according to a transcript provided by FactSet.
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