Alibaba Group Holding Ltd.'s (BABA, Financial) downturn started after reaching its all-time highs in late 2014. The e-commerce company, however, managed to regain its lost upward momentum in 2016 as the stock was up nearly 15%. Moreover, the stock has endured to move upward heading into 2017 as well.
Since its initial public offering in September 2014, Alibaba’s revenue has been growing at a strong rate. Moreover, the company reported robust fiscal third-quarter 2017 results in January. For the quarter, the e-commerce company reported earnings per share of $1.30, exceeding the estimates by 17 cents. Revenue came in at $7.70 billion, again surpassing the consensus by $370 million.
Most significantly, that figure represents a whopping 54% surge from 31.7% in the same quarter of fiscal 2015. Furthermore, the company has $5 billion in free cash flow, which will allow it to spend generously on new growth opportunities in the coming years.
Alibaba’s impressive revenue growth was mainly driven by online marketing service revenue, which surged to 47% year over year. Its cloud business is also displaying signs of positive growth.
In the most recent quarter, revenue generated from the cloud computing segment escalated 115% year over year. In addition, the adjusted EBITDA margin came in at -5%, up considerably from -41% in the previous quarter.
Apart from this, the company’s digital media and entertainment segment performed amazingly well. Revenue generated from this segment increased 273% year over year due to the acquisition of Youku Tudou.
Moving ahead, it is well known that services offered by Alphabet's (GOOG, Financial)(GOOGL, Financial) Google have been completely banned in China since 2014. According to a report from statista.com, the Chinese mobile operating system (OS) market is mainly governed by android, followed by Apple’s (AAPL, Financial) iOS. This has unlocked several growth opportunities for rivals, especially for Yun mobile operating system (YunOS), which was developed by Alibaba Group.
Currently, YunOS powers several kinds of smart devices, including motion-sensing gaming controls, smart watches and smartphones. YunOS is on its way to grasp 14% of smartphone shipments in mainland China, placing it ahead of Apple.
Summing up
Alibaba rewarded shareholders with healthy returns in 2016, but the company is still young and has more to come in the imminent years. Moreover, the company is producing positive income and is growing at a rapid rate. Most significantly, its large amount of free cash flow will help it expand its footprint in the hottest growth areas.
On the other hand, the company successfully managed to rebound to near its all-time high levels from its all-time lows in a short span of time, highlighting its growth potential. Alibaba’s stock price currently hovers around its 52-week high.
As an outcome, investors should continue holding the stock for strong returns in the future.
Disclosure: No position in the stocks mentioned in this article.
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