Alibaba Group Holding Ltd (NYSE:BABA) had disappointed investors since going public in late 2014. After an initial trade near $94 per share, Alibaba stock fell hard in 2015, at one point to below $60 per share.
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As it prepared to reveal third-quarter earnings, however, BABA stock was on a roll, breaking the $100 per share mark in September. But controversy followed, with a Securities and Exchange Commission investigation of its accounting practices featuring an alleged “high-up” insider. Analysts were reportedly (and understandably) nervous as its earnings date approached.
If you sold Alibaba stock on that news, though, you made a mistake.
This morning, BABA reported earnings for the quarter ending in September, and Wall Street liked what it saw. Alibaba earned $1.942 billion, or 79 cents per share, on revenue of $5.142 billion. This easily beat analyst hopes for earnings of 79 cents per share and revenue of $5.13 billion.
The non-GAAP net income was up 41% over the previous year, revenues up 55%, and the shares shot up nearly 3% before the market opened. Our own Tyler Craig was recommending selling the $90/$95 bull put spread — a trade that was in the money as the stock opened for trading.
Alibaba Takes on the World
The Alibaba you buy into today is far removed from the business-to-business marketplace that executive chairman Jack Ma helped found in 1999.
In addition to bringing small Chinese manufacturers to the local and global market, Alibaba now runs its own online mall called Taobao, an international store called AliExpress and a logistics company called Cainiao. Some 70% of its revenue still comes from retail operations within China, but its fastest-growing operations are all outside the retail space.
While a lot of attention is focused on the Alibaba Cloud, which grew 130% year-over-year, that represents just 4% of revenue. It is digital media and entertainment that is adding the most fuel to the earnings fire, and this quarter it represented 11% of revenue. BABA is even buying a stake in Steven Spielberg’s Amblin Partners, which will help the American company gain distribution in the Chinese market.
The e-commerce operations are also spreading rapidly across Asia, with Alibaba backing a company called Lazada on Nov. 1 as it bought Singapore’s RedMart, a grocery delivery company. BABA also is bringing its mobile payment mechanism to Australia so consumers there can buy on its AliExpress service.
As Alibaba grows, however, trouble follows.
Does Alibaba Stock Fly Too High?
The company recently risked a public backlash by renaming its AliTrip travel agency Fliggy, or Flying Pig, which Muslims considered insulting. American trade groups want the company back on the U.S. Trade Representatives Piracy List, saying the market does not do enough to stop product counterfeiting.
Ma has been cooperative with China’s government efforts to use the online world in policing, and he recently made a speech where he suggested China use commercial data to prevent crime. It could see someone arrested if they bought the ingredients for committing a crime, even if all those actions were legal.
What Comes Next?
Next up on Alibaba stock holders’ radar is what it used to call Singles Day, formerly a 24-hour promotion built around Nov. 11, now expanded to a 24-day “Global Shopping Festival.” It launched the promotion with an eight-hour fashion show in Shanghai, working with 80 different branded clothing companies.
BABA also is backing a location-data company called PlaceIQ, and it caused a pop in shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) after buying its graphics chip to help run Alibaba Cloud.
As much as Amazon.com, Inc. (NASDAQ:AMZN) may be the 800-pound gorilla of America’s e-commerce space, Alibaba is all that, and more, for China.
And it’s hungry for more.
Dana Blankenhorn is a financial journalist and author of the science fiction story Into the Cloud. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.