Alibaba Group Holding Ltd. (BABA, Financial) is up over 15% this year and investors who bought the stock on the recent dip have enjoyed great profits. The company reported its third-quarter earnings yesterday and came in way ahead of analysts’ expectations. Although the market had already priced in a beat before the earnings were officially released, the stock still moved higher because of the stellar report.
For the quarter, Alibaba’s revenue came in at $7.7 billion, signifying growth of over 54% year over year and beating estimates by $370 million. The company’s EPS for the quarter was $1.30, which also beat the consensus by a margin of 17 cents. Given the nature of the earnings and revenue beat, it is not surprising the stock is edging higher.
Revenue growth of 54% is very impressive for a company as big as Alibaba. The strong growth in the overall business was supplemented by the company’s cloud segment. The segment witnessed impressive growth of 115% to $254 million. Given the impressive nature of the beat, I am quite surprised Alibaba has not rallied higher.
The market is probably worried about Alibaba’s recent SEC probe, as there was no discussion about it during the conference call. If the company comes out clean, the stock could rally further since the numbers support a move higher.
The company has made several investments to improve its mobile business. The positive effects of these investments are evident in the number of monthly active users jumping to 493 million for the quarter, indicating a year over year rise of 25%.
Given the double-digit growth across the board, I am surprised the stock is not nearing its 52-week high levels. If the SEC probe amounts to nothing, investors can expect the stock to shoot much higher from current levels, thereby making it a buy.
Conclusion
Alibaba’s quarterly results were excellent as it reported double-digit growth across several important sectors. Given the margin of the earnings beat, I think the stock is still undervalued and investors should consider buying it based on its future potential. Alibaba should continue growing at an impressive rate and the stock’s current valuation does not reflect its true potential. Hence, I think investors should buy the stock.
Disclosure: No position.
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