Before all eyes turn to Apple’s (AAPL) earnings tonight, the Street was first anxious to hear results from Alibaba (BABA) — and the Chinese e-commerce giant didn’t disappoint.
Fiscal second-quarter revenue came in stronger than expected, up 32% despite a slower pace of goods transactions. One key metric was revenue from mobile platforms, an area management has been focused on growing. That segment’s revenue nearly tripled to $1.66 billion, 62% of which came from mobile merchandise volume on Alibaba’s China retail marketplaces.
Management had lowered guidance during a conference last month, so the bar was already reachable for the quarter, but the large beats sent the stock soaring in pre-market trading and shares opened at a fresh 52-week high. Alibaba has yet to miss a quarter, and usually beats by an average of 5%, so I wasn’t too surprised by the news.
However, the fact that BABA hit big on both top- and bottom-line numbers has renewed interest in the name at a time when China still has plenty of question marks around it.
China’s Impact on BABA Stock
For me, there are definitely a lot of troubling anecdotal stories of Beijing forcing Chinese manufacturers to offer extreme customer discounts in order to keep the lights on and employees working. It’s getting nebulous over there, and long-term investors need clarity to thrive. Ultimately, that kind of policy sacrifices corporate profit in the name of social stability.
The good news is that, as long as the game goes on, BABA is a social stability story because it’s on the side of the domestic customers who Beijing is hoping to keep consuming; the company is a proxy for the success (or failure) of the new track to what could become a $67 trillion economy.
Meanwhile, the People’s Bank of China remains committed to steering liquidity where Beijing wants it. Right now that’s toward cheap credit to fuel sales for BABA as well as weakening purchasing power when it comes to buying import brands. If today’s numbers prove themselves, the company’s hold on whatever Chinese retail activity keeps going on will probably tighten.
Bottom Line on Alibaba
My bottom line on BABA is that, while there are large enough concerns here that would make me shy away from the stock as a long-term investment, it holds great potential as a short-term trading opportunity. This morning’s report has already gotten momentum rolling, pushing shares above a key $80 level they haven’t seen since early August. With the Street focused on headline numbers, it’s in a good position to continue as the year-end rally plays out.
There are plenty of U.S. stocks that have near-term upside as well, but if you’re looking for some exposure to Shanghai’s recovery, BABA is an intriguing bet.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
