This trend is increasing here, which means the Company is becoming more reliant on other countries to achieve financial goals. Now look at all the risk factors listed for foreign business, these should not be overlooked, and could have a material impact on the Company's financial performance.
R&D expense as a % of Revenue equaled 3.7%, 6.9%, 7.5%, 12.2% for 2011,12,13 & Q1'14. The trend is increasing, which could be detrimental to future financial performance. The Company is stating here that R&D is expected to continually be a large, volatile expense, given the Industry (tech).
Translation: Adjusted EBITDA is not a good measure to use as an investor. Look at all the items it excludes: Interest expense, Taxes, Cap-Ex, etc. These are real expenses that the Company incurs, and therefore should be accounted for from an investor perspective.
Translation: The Company's revenues are not diversified enough. If sales of the capture devices fall, that will have a significant impact on the Company's financial performance. The Company needs to find other sources of revenue to diversify the revenue stream.
Potential future revenue stream for the Company, although, they are clearly stating that this new revenue stream will not be material for 2014. If this stream does materialize, it will take a few years (at least) to ramp up and stabilize/make an impact on the Company's total revenues.
The Company's net profit margin has been experiencing a decline & displayed volatility over the time periods presented. NPM decreased from 10.5% in 2011 to 4.7% for Q1'14. NPM was 6.1% in 2012 & 2013.
Translation: Since Alibaba is a foreign company with ADS/ADR securities, the reporting will not be as robust as a US Company, which is required by the SEC. Alibaba is telling us right here that they don't have to play by the same rules as a US company when it comes to reporting & disclosure, which increases company specific risk.
Translation: If the Company can't turn the mobile function into a revenue stream, that could have an adverse affect on the Company's financials. Many companies have had trouble monetizing new technology (i.e. how do you make money off it)
18.2% of the Company's assets are in goodwill & intangibles. That is a high amount, and should be eyed with caution, as the Company may be overstating its assets, and may have to take future impairment charges
Translation: The Company's carrying value of goodwill & intangibles was too high, so they are writing some of it off (down) to have the carrying value more inline with fair value. This increases expense and decreases assets & equity ($28M USD impairment charge in Q1'13)
Adding back accretion, stock based comp, and amort of intangibles to arrive at a Non GAAP Net Income does not accurately project the Company's true earnings, it distorts the data. FASB 123(R) requires options to be expensed as incurred, they should not be added back. Same for amort of intangible assets. Essentially, goodwill was created (most likely from recent acquisition of "Bright"), and is now being amortized. Again, this should not be added back to net income to derive an adjusted NI. Also, goodwill should be tested for impairment annually according to FASB standards. Don't put too much weight on Non GAAP measures.
FASB Statement 123(R) requires companies to accurately account for and expense the cost of stock options to execs. This is a true cost of business, and should be deducted as an expense as incurred. I would not pay much attention to Non GAAP measures, as they don't project the accurate picture of the Company's financials. Also, Note 11 in 10Q states "The Company capitalized $2.7 million and $1.5 million for the three months ended March 31, 2014 and 2013, respectively, of stock-based compensation as website development costs." This is essentially putting off a current expense to a future year. While GAAP may permit this, I would argue those amounts should have been also expensed as incurred and not added to the balance sheet and capitalized & amortized.