Analysis of Alibaba Group Holdings Limited Financial Performance

Posted: August 27th, 2021

Analysis of Alibaba Group Holdings Limited Financial Performance

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Analysis of Alibaba Group Holdings Limited Financial Performance

Alibaba Group Holdings company is a Chinese multi-national. Jack Ma founded it. The core inspiration for starting the company was based on the shared belief that utilizing the Internet can level the field to enable emerging and existing small enterprises to upscale their innovations. Hence, the company focused on technology as the core driver of growth and competitiveness, both local and global levels. Since its establishment in 1999, the company has since grown to be amongst the top global leader operating wholesale and retail businesses within mobile and online commerce. The main businesses include cloud computing, entertainment, and digital media, as well as innovation initiatives. Thus, the purpose of this report is to conduct a financial assessment of the company’s financial performance based on the past three years; that is, 2017, 2018, and 2019.

Alibaba’s Current Financial Health and Trend

Over the recent period, Alibaba has grown into becoming almost an entirely franchised chain, associated with over seventeen thousand franchises. The restaurant currently runs only fifty-two units as company-owned. However, the overall locations have increased substantially per year, according to the past reports. The growth is shown in the company’s revenue growth that has been increasing for three years. The total current revenue is estimated at 1.78 billion, according to the 2019 financial statement. The following analysis illustrates the current financial health of the company.

Table 1: Alibaba Group 3 Year Financial Performance (2017,2018 & 2019)

(Amount in US $ Billions)

	2017	2018	2019
Total Revenue	$                 22.99	$                   39.90	$                   56.15
Total Expenses	$                 16.01	$                   28.77	$                   47.65
Net Income	$                   6.35	$                   10.20	$                   13.05
Current Assets	$                 26.52	$                   40.94	$                   40.27
Total Assets	$                 73.63	$                 114.33	$                 143.80
Current Liabilities	$                 20.97	$                   30.37	$                   37.70
Total Liabilities	$                 26.98	$                   44.75	$                   66.10
Total Number of Common Stock Outstanding	$                   2.57	$                     2.61	$                     2.62
Stockholders’ Equity	$                 46.65	$                   69.58	$                   90.68
Return on Sales	11.44%	8.78%	15.39%
Current Ratio	1.97	1.25	1.75
Return on Equity	18.37%	14.54%	24.30%
Debt-to-Equity	0.29	0.2	0.14
Reported Earnings Per Share(Basic)	$                   2.47	$                     3.91	$                     4.97
Year-End Stock Price	$                 17.72	$                   21.98	$                   89.73
Market Cap	$                 55.11	$                   45.07	$                 571.20

Source: Alibaba group holding limited (BABA) balance sheet – Yahoo finance,” n.d.

As demonstrated in Table, the company has exhibited constant growth in revenue over the three years. The highest performance is reported in 2019, representing a 56% increase from the previous years (Alibaba, 2019). Equally, the company expenses across the three years have been

increasing. This can be attributed to the acquisition of intangible assets, copyrights, improving customer experiences, and increased user-base. Likewise, revenue costs were estimated at 53%, according to the 2019 financial year. The development is attributed to the company’s move to purchase Ele. me, a food delivery company valued at the US $ 9.5 billion to sustain its competitiveness within the Chinese market (Wu & Borkovskaya, 2020). Notwithstanding, the company’s liabilities and assets have exhibited fluctuations in their trend with an increase of about 65.83% for liabilities and 55.26% for assets following the acquisition of several intangible assets estimated at the cost of US $ 4.75 billion (Wu & Borkovskaya, 2020). Figure 1 below illustrates this analysis, showing trends in revenue, assets, liabilities, and cost of revenue performance over the three years.

Figure 1: Alibaba Financial Performance (2017,2018 & 2019)

Figure 1 above shows the trend in financial performance for the past three years. Despite the relative increase in expenses, the net income has been increasing tremendously over the period.

            Further, the company stock price depicts an increasing trend reported from FY 2017 to FY 2019 with an estimated range of US $ 17.73 billion in 2017 to the US $ 89.74 in 2019 (Kharpal, 2019). This indicates a positive trend about future investment for the company’s potential investors. According to Kharpal, the increase in stock prices is attributed to the steady growth in core companies’ performance. Notable core companies that have reported tremendous growth include Cainiao network and cloud computing as well as share acquisition by potential investors such as Blackrock, Inc. (Kharpal, 2019). Besides, despite the Hong Kong protests, the company stocks remained resilient and continued to rise (Romann, 2019).  Likewise, the share price has exhibited stability during the COVID-19 pandemic (Bary, 2020). Thus, this stability demonstrates that the company has a promising future and remains attractive to potential investors.

            Similarly, a comparative examination of the current liability and assets shows that the company has the highest current ratio estimated at 1.97, according to the 2017 financial year. The ratio reduced in 2018 following the purchase of intangible assets. Responsively, the current liability increased. However, this trend changed during FY 2019, rising to about 1.76 (Wu & Borkovskaya, 2020). Thus, Alibaba sustained its current ratio above one, implying that it can meet its obligations without selling its assets. Likewise, the company reported the highest return on investment (ROI) as per the 2019 financial period, implying that the company embraces efficient financial resources for its investors.

            An examination of the debt-to-equity ratio revealed that it decreased from 0.30 in 2017 to 0.15 in the 2019 financial year(Wu & Borkovskaya, 2020). This shows that the company can finance its operations without relying on debts, thus a positive trend. Therefore, the ratios illustrate that Alibaba can sustain its revenues and expenses besides providing investors with a stable and high return on their shares. Equally, the company continues to expand its investments in services and logistic companies to enhance its competitiveness.

Factors Affecting the Industry

Assessment of the industry reveals that several factors influence their trends. These include economic, political, environmental, and social. Critical among these factors is the international politics attributed to the continued strained relationship between China and the USA. Other issues include the recent Hong Kong protests and the COVID-19 pandemic that have affected the global economic performance. Despite these factors, Alibaba continues to sustain its operation with increasing performance. Thus, the stability of the company has been key to driving its performance.

Comparative Analysis

The company is among the most extensive group holdings worldwide. The most significant competitors for Alibaba are eBay and Amazon. Figure 2 below summarizes a comparative analysis of key metrics of their respective financial statements in 2019.

Figure 2: Comparative Analysis of Alibaba, Amazon, and eBay

As demonstrated in Figure 2, Amazon scores highest in total revenue, assets, and expenses. Alibaba comes second before eBay. However, Alibaba’s net income is almost at par with Amazon. Table 2 is a summary report on the company’s financial statements.

Table 2: Industry Comparative Analysis

(Amount in US $ Billions)

	Alibaba Group Holding Ltd	Amazon.com, Inc.	eBay Inc.
Total Revenue	$                                   56.15	$                 280.52	$                 10.80
Total Expenses	$                                   47.65	$                 265.98	$                   8.48
Net Income	$                                   13.05	$                   11.59	$                   2.31
Current Assets	$                                   40.27	$                   96.33	$                   4.71
Total Assets	$                                 143.80	$                 225.25	$                 22.82
Current Liabilities	$                                   37.70	$                   87.81	$                   4.07
Total Liabilities	$                                   66.10	$                 163.19	$                 15.30
Total Number of Common Stock Outstanding	$                                     2.62	$                     0.50	$                   0.86
Stockholders’ Equity	$                                   90.68	$                     2.87	$                   2.87
Return on Sales	15.39%	21.07%	20.00%
Current Ratio	1.75	1.1	1.16
Return on Equity	24.30%	21.07%	46.24%
Debt-to-Equity	0.14	0.38	2.52
Reported Earnings Per Share(Basic)	$                                     4.97	$                   23.46	$                   2.09
Year-46.24End Stock Price	$                                   89.73	$              1,847.84	$                 36.11
Market Cap	$                                 571.20	$                 906.44	$                 26.30

Source: Alibaba, Amazon, and eBay financial Statements

From Table 2, it can be shown that Amazon is the leader in the industry. This is demonstrated in various aspects, including high performance in revenues, assets, and net income. Alibaba performs better on returns on sales than Alibaba and eBay. However, eBay has outperformed the two regarding equity, with 46.23%, while Alibaba was at 21.07% and Amazon at 24.30%.

Conclusion

The analysis shows positive trends in the overall performance of the company. Equally, a comparative assessment demonstrates that the company is among the largest in the industry, coming only second to Amazon. However, the industry is competitive, and it continues to face stiff competition from eBay and Amazon, among other emerging companies. Irrespective, the financial assessment shows stability and efficiency in the utilization of investor financial resources. Therefore, being an investor, I would recommend purchasing bonds and equity securities both in the short-term and long-term periods.

References

Alibaba group holding limited (BABA) balance sheet – Yahoo finance. (n.d.). Retrieved from https://in.finance.yahoo.com/quote/BABA/balance-sheet?p=BABA

Bary, E. (2020, May 23). Alibaba sees China’s retail volume growing near pre-pandemic levels, but stock falls amid U.S.-China tensions. Retrieved from https://www.marketwatch.com/story/alibaba-sees-china-retail-volume-growing-near-pre-pandemic-levels-but-stock-falls-amid-us-china-tensions-2020-05-22

Kharpal, A. (2019, January 31). Alibaba shares soar as the market looks past the company’s record $41 billion spending spree. Retrieved from https://www.cnbc.com/2019/01/31/alibaba-shares-soar-spent-record-41-billion-in-2018.html

Romann, A. (2019, November 25). Why Alibaba chose Hong Kong to list its shares despite protests. Retrieved from https://www.aljazeera.com/economy/2019/11/25/why-alibaba-chose-hong-kong-to-list-its-shares-despite-protests

Sec.gov. Report. Retrieved from https://www.sec.gov/Archives/edgar/data/1577552/000104746916013400/a2228766z20-f.htm

Wu, X., & Borkovskaya, V. (2020). Research of the profit model of the Chinese e-Commerce platform on the example of Alibaba and DHgate. CITISE, 25(3). doi:10.15350/2409-7616.2020.3.31