ii view: A successful singles day at Alibaba

by Keith Bowman from interactive investor |

Amazon Mk II or a force in its own right? Should investors be buying this Asian success story?

Third-quarter results to 31 December 2019

  • Revenue rose by 38% to US $23.2 billion
  • Adjusted earnings (EBITDA) up 37% to $8 billion
  • Annual active consumers on its China retail marketplaces reached 711 million, up 18 million 

Chief executive Daniel Zhang said:

“Alibaba Group experienced robust growth across our business this past quarter. Continued investment in user engagement, especially through social commerce content, contributed to our strong gains in annual active consumers. As a result of its rapid growth, our cloud computing services for the first-time generated revenue of over RMB10 billion (US$1.54 billion) in a single quarter.

“In response to the coronavirus, we mobilized Alibaba ecosystem’s powerful forces of commerce and technology to fully support the fight against the outbreak, ensure supply of daily necessities for our communities and introduced practical relief measures for our merchants.”

ii round-up:

Chinese online retailer, Alibaba Group (NYSE:BABA), reported sales and earnings which topped analyst estimates in these latest quarterly results. 

Aided by the success of Singles Day in November, a Chinese similarity to Black Friday in the US, total group revenue jumped by 38% to $23.2 billion, with earnings per share coming in at $2.61. 

Alibaba, founded by 18 people and led by Jack Ma back in April 1999, generates revenue mainly by selling advertising and promotional services to third-party merchants that list products on its e-commerce sites. 

Active consumers on its Chinese retail marketplaces, such as Taobao and Tmall, grew by 18 million to 711 million. Mobile active users jumped by 39 million to 824 million. 

Listed on the New York Stock Exchange, Alibaba operates across the four divisions of Core Commerce - by far its biggest sales generator - Cloud Computing, Digital Media and Entertainment and Innovation initiatives.

Cloud computing revenue jumped by 62%, driven by increased revenue contributions from both its public cloud and hybrid cloud businesses.

The shares were down in early US trading. 

ii view:

China’s equivalent to US online retailing giant Amazon (NASDAQ:AMZN), Alibaba has made huge progress in its two-decade-long history. A new chapter for the company recently commenced as founder Jack Ma passed the leadership reins to Daniel Zhang. 

For investors, exposure to consumers in the world’s second-biggest economy is an enticing prospect. A stock market value of around $600 billion trails the $1 trillion-plus of Amazon, leaving plenty of room for further potential growth. 

But with a one-year forward price/earnings ratio at over 200, any setbacks could see the share price punished hard. Concerns regarding the health of the Chinese economy, the coronavirus and broader US Chinese politics must also be remembered.  

Positives

  • Exposure to the world’s second-biggest economy
  • Looking to grow sales outside of China

Negatives

  • Cloud computing is loss making
  • Major company Tencent also competes in the cloud computing arena

The average rating of stock market analysts:

Strong buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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