This year will always be remembered as the year of the novel coronavirus. For investors, that also means it was the rise of e-commerce stocks, like Alibaba (NYSE:BABA). Alibaba stock is undergoing a huge growth spurt.
Alibaba is up more than 40% so far this year, with quarterly earnings coming up before the opening bell on Thursday (Nov. 5).
There are plenty of reasons to expect a good quarter and a strong 2021 from Alibaba stock. BABA is one of my favorite tech stocks, and it’s one of the hottest mega-cap growth stocks on the market today.
Earnings Are Here
Alibaba stock is expected to post earnings for its fiscal second quarter before the opening bell on Thursday.
Analysts are expecting a strong quarter, projecting earnings of $1.67 per share versus $1.49 the company reported in the same quarter a year ago.
In the fiscal first quarter, Alibaba posted revenue of $21.76 billion and earnings of $2.10 per share. That topped analysts’ expectations of $21.34 billion in revenue and earnings of $1.99 per share.
Growth of the Middle Class
One trend really fueling Alibaba’s growth is its unique position in China. As the Wall Street Journal reports, Alibaba is seeing serious growth in smaller cities in China because of the pandemic.
Here’s the situation. Alibaba was already a major player before the pandemic in China’s large cities. However, when the pandemic struck China and much of the country was faced with lockdowns, Alibaba made huge inroads in smaller cities with the home delivery of fresh food.
Keep in mind, 70% of China’s population lives outside of large urban centers. Now with that population embracing e-commerce and using Alibaba as a convenient way to bring food into their homes, Alibaba stock will only profit.
When Alibaba reports earnings, watch for any information the company releases on ecommerce growth trends within China.
Alibaba Stock and the Cloud
Another major driver for Alibaba is cloud computing. Alibaba has been diligently building its cloud computing business in China. Now the company will benefit in a big way.
In late September, Alibaba announced that they will make a profit from its cloud computing unit during the 2021 fiscal year.
And the growth is not over. The company is investing 200 billion yuan (US$29.9 billion) over the next three years to grow out its cloud computing network.
Alibaba chairman and CEO Daniel Zhang says cloud computing is “the kind of opportunity that comes only once in a generation.” And he’s right.
Other Major Drivers
No discussion of Alibaba is complete without addressing the upcoming mammoth initial public offering of Ant Group. Ant is an internet finance spinoff of Alibaba, and BABA stock holds a 33% stake in the company.
Ant’s IPO will be the biggest in history. It’s reportedly raising $34.5 billion, which would value the company at more than $313 billion.
That means Alibaba’s stake in the company would be more than $104 billion, or about 12% of Alibaba’s market capitalization.
Ant shares are expected to be sold on both Hong Kong and Shanghai exchanges. So, the possibility (or probability) of profits for Alibaba stock is enormous.
Alibaba is also reportedly considering a $300 million investment in Farfetch Limited (NYSE:FTCH). Farfetch is a luxury fashion company with both an e-commerce and a brick-and-mortar presence, operating in 190 countries.
The Bottom Line
Alibaba is already a huge company. But the bold, dramatic moves that it continues to make shows that it won’t rest on its laurels.
Alibaba is targeting a goal of having 1 billion active customers by the end of 2024. It may be hard to believe for a mega-cap company, the growth story has a long way to go for Alibaba stock.
BABA has an ‘A’ rating in my Portfolio Grader right now, where it is strong buy.
On the date of publication, Louis Navellier had long position in BABA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.