Alibaba Group Holding Ltd’s (NYSE:BABA) fiscal first-quarter earnings report, released Thursday, was nothing short of stupendous. The Chinese e-tailing company clearly is doing a many things right. Moreover, BABA stock clearly still has huge growth potential.
Sort of like a great baseball pitcher who does well on many days when he doesn’t have his “best stuff,” even the company’s businesses that are not directly boosting Alibaba’s bottom line appear to be helping it in some way or another.
Alibaba stock doesn’t seem like “just” a buy at current levels, but a no-brainer buy given its potential for rapid growth.
Alibaba’s Recent Results
The e-commerce giant’s revenue last quarter soared 56% year-over-year to 50.18 billion yuan. That was powered by a 58% jump in e-commerce sales to 43 billion yuan, and a 95% surge in cloud computing revenues to 2.43 billion yuan. Net income of $1.17 per share was far better than the consensus outlook for 93 cents.
Monthly active users of Alibaba’s core e-commerce business jumped by 22 million over just the last quarter, reaching 529 million. By spending money to enhance the content of its app, the company says, Alibaba has been able to significantly increase the engagement of its users.
For example, its app allows users to join groups they’re interested in. That “has resonated with China’s young users,” Bloomberg pointed out a year ago. And the company’s Internet video website, Youku Tudou, more than doubled user growth year-over-year.
So even though Alibaba’s digital media and entertainment unit was a loss leader, registering a negative EBTIDA margin of 98%, the increasing popularity of its components is helping draw more users to the company’s e-commerce website.
BABA also has increased the number of purchases made by visitors to its e-commerce website through the use of artificial intelligence. AI has enabled the company to present users with products for sale that are more personalized to their individual wants and needs.
Alibaba’s growth outlook remains quite strong, too.
E-commerce, which is growing rapidly in China, still only accounts for 15% of total retail revenue there, while, as the company pointed out, “every industry is seeking to migrate to the cloud,” making its 1 million cloud users “only a starting point.” And Alibaba’s cloud business is close to achieving profitability for the first time, as its EBITDA margin came in at -4% last quarter.
Additionally, Alibaba said that the revenue generated by its international e-commerce business had surged 136% to 2.638 billion renminbi. The company added that its investments in international e-commerce are “laying the foundation for long-term growth.”
Given all of these growth engines, Alibaba remains quite attractive at current levels.
Bottom Line on BABA Stock
Analysts were mostly upbeat on Alibaba in the wake of its results.
- For example, Colin Sebastian, an analyst at Robert W. Baird, wrote that the results “beat elevated expectations,” and he thinks that its e-commerce unit “continues to benefit from strong domestic online spending trends,” according to The Fly. He raised his price target on BABA stock to $190 from $170 and gave it an “Outperform” rating.
- Extremely upbeat was Raymond James’ Aaron Kessler, who hiked his price target on Alibaba stock to $220 from $175. The company is benefiting from “continued strong core commerce revenue growth and margins, Cloud leadership, narrowing losses in investment areas,” while its valuation is attractive, wrote Kessler, who kept a “Strong Buy” rating on Alibaba stock.
- JPMorgan’s Alex Yao hiked his price target on BABA stock to $205 from $190, saying that it is benefiting from its “strategic planning and execution capability,” while the company is “one of the best quality growth names” covered by the firm. Yao kept an “Overweight” rating on the stock.
Alibaba does face some risks, as China’s government is volatile and could crack down on Internet use in the country at any time. Additionally, the Trump administration could easily get into a trade conflict with China, badly hurting the Asian country’s economy and creating a significant headwind for Alibaba.
In the past, investors who wanted to buy the shares of an e-commerce giant with a high level of safety would have been better off with Amazon.com, Inc. (NASDAQ:AMZN) than Alibaba. But since President Trump has put Amazon in his cross hairs, BABA stock is the better bet from both a growth and risk perspective.
As of this writing, Larry Ramer did not hold a position in any of the aforementioned securities, but may initiate a position in BABA within the next 48 hours.