It’s been an impressive start for the shares of Alibaba Group Holding Ltd (NYSE:BABA) this year, with the gain at about 15%. Although, this week we’ll get some confirmation if the move to invest in BABA stock is the right one. On Thursday, BABA will release its fiscal third-quarter-earnings results (which will come out before the market opens).
What are the consensus expectations? Well, the revenues are expected to soar by 64% to $12.6 billion and earnings per share to come to $1.67, up from $1.30. By comparison, last year the quarter top-line growth was 54%.
No doubt, BABA stock was very active in the quarter. Let’s take a look at some of the important news items:
- India: BABA opened a new datacenter in Mumbai, India, which will allow the company the opportunity to capitalize on the country’s boom in cloud computing.
- Financing: The company issued senior unsecured notes of $7 billion, so as to help provide the resources for the ambitious growth efforts.
- Singles’ Day: BABA posted a whopping $25.3 billion in sales from its e-commerce platform. The shopping included consumers from at least 225 countries.
- M&A: The US government blocked BABA’s Ant Financial Services Group from acquiring Moneygram International Inc (NASDAQ:MGI).
But there was also some buzz about BABA stock during the quarter. For example, according to a report from the New York Post, it looks like the company is talking about putting together an alliance with Kroger Co (NYSE:KR).
The goal would be to use BABA’s e-commerce expertise to digitize the grocery business – and yes, take on the mighty Amazon.com, Inc. (NASDAQ:AMZN).
According to InvestorPlace.com’s James Brumley:
“Alibaba already operates about a dozen grocery stores. And in the middle of last year, it developed an app that enhances and simplifies the grocery shopping experience. The Hema app was built from the ground up to be a revenue-bearing product.”
BABA Stock And Earnings
Playing upcoming earnings reports can be dicey. This is especially the case with tech operators. But with BABA stock, the company has a solid record of beating the estimates.
More important, there are long-term growth drivers. Note that the Chinese middle class is forecasted to reach 600 million by 2020. This compares to the total population in the U.S. of 320 million.
China also represents the world’s largest retail market, at about $4.9 billion. And as for the e-commerce segment, it is expected to grow from from $470 billion in 2017 to $839.54 billion by 2021. In other words, there is still lots of runway left for BABA.
The company also has inherent advantages. Consider that its retail marketplaces have roughly 488 million active consumers. What’s more, BABA has been aggressive in expanding its platform into growth areas like cloud computing and entertainment.
Oh, and the company has continued to make savvy strategic investments, such as in companies like Weibo Corp (ADR)(NASDAQ:WB).
Now this is not to imply that BABA stock is somehow risk free. Let’s face it, China can be volatile, as seen with its governmental policies. There is also the issue of competition.
To this end, JD.Com Inc(ADR)(NASDAQ:JD) has been making aggressive moves, such as with partnerships with companies like Wal-Mart Stores Inc (NYSE:WMT) and Tencent Holdings Ltd (OTCMKTS:TCEHY).
Yet despite all this, I still think BABA stock is a pretty good long-term play. And even with the run-up in the shares, the valuation is still relatively attractive, with the forward price-to-earnings multiple of 28X.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
