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Alibaba: Earnings Propel BABA Stock to New Highs

BABA - Alibaba: Earnings Propel BABA Stock to New Highs

Source: Charles Chan Via Flickr

Alibaba Group Holding Ltd (NYSE:BABA) shares are soaring Thursday morning, with BABA stock touching new 2016 highs thanks to a big earnings beat.

Alibaba stock BABA

Fiscal first-quarter profits came to 74 cents per share of Alibaba stock on revenues of $4.838 billion. That represented 25% year-over-year growth on the bottom line, and 59% growth on the top. Better still, both numbers topped consensus expectations for 61 cents per share on $4.61 billion, respectively.

“The 59% revenue growth for the company overall and the 49% revenue groath of our China retail marketplaces represent the highest growth rates we’ve achieved since our IPO,” CFO Maggie Wu said of the quarter.

A few other highlights for the quarter:

  • China retail martketplace revenue was $3.518 billion, up 49% YoY.
  • Mobile marketplace revenue was $2.635 billion, up 119% YoY.
  • Core ecommerce earnings were$2.501 billion, up 38% YoY.
  • Mobile MAUs reached 427 million in June, up 17 million since March.
  • Marketplace GMV came in at $126 billion, up 24% YoY.
  • Cloud computing revenue came in at $187 million, up 156% YoY.

That sound you hear? A huge sigh of relief from BABA stock holders.

More Reassurance for Alibaba Stock Investors

Since BABA’s highly anticipated IPO in late 2014, the stock has largely disappointed. U.S. e-commerce and cloud computing rival,Inc. (NASDAQ:AMZN) has been one of the top performers in the market since the beginning of 2015, But BABA stock has sputtered. Despite the fact that the two companies have reported similar growth numbers, AMZN stock is up nearly 150% since the beginning of 2015. BABA is off 16%.

However, Alibaba investors are hoping another strong quarter of growth will help reassure U.S. investors that the company is the real deal.

Why do they need reassurance? First, while many U.S. investors use Amazon’s platform on a daily or weekly basis, most American investors aren’t personally familiar with Alibaba’s services. Second, BABA stock is structured as a “variable-interest entity,” meaning that shareholders don’t own a direct interest in Alibaba. While that structure is common among U.S.-listed Chinese companies, it may seem convoluted to American investors.

Finally, back in May, Alibaba announced that the U.S. Securities and Exchange Commission had launched an investigation into the company’s accounting practices. Some investors were understandably spooked by the news, but Jack Ma said the probe is “an opportunity for us to let them understand what we’re doing.”

China’s Economy Is Better Off Than Feared

The downward drift in BABA stock over the past two years was in large part thanks to market concerns over the strength of the Chinese economy. While Chinese GDP growth has certainly slowed, it still is growing at a brisk 6.7% pace as of Q2.

Once again, some U.S. investors don’t trust the official GDP numbers coming out of Beijing. But even the most conservative estimates of China’s true future economic growth rate still estimate growth several times the Q2 U.S. growth rate of 1.2%. And back in December, Boston Consulting Group projected that China’s consumer economy will grow by $2.3 trillion by 2020.

With Alibaba well-positioned as China’s leading e-commerce company and its fastest-growing cloud services provider, BABA stock might be the best long-term growth story in the market today.

As of this writing, Wayne Duggan was long BABA.

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