Alibaba Group Holding Ltd. (BABA, Financial) displayed robust performance in 2016, and the story is the same this year as it is up nearly 80% year to date. The Chinese e-commerce company’s impressive run started after nearing its all-time low in February 2016 and looks like it will continue moving upward at a rapid pace in the coming years.
Alibaba has reported strong revenue growth over the past few quarters and once again managed to crush its first-quarter earnings report. For the quarter ended June 30, the Chinese e-commerce giant shared earnings per share of 83 cents, beating the analyst’s estimate by a wide margin of 22 cents.
Moving onward, its revenue came in at $7.32 billion, again surpassing the consensus by $7.18 billion. Moreover, that figure represents a surge of 56% year over year, driven primarily by continuously growing online sales. As a result of its robust performance, the share price of the Chinese e-commerce giant is up nearly 4%.
The revenue generated from Alibaba’s e-commerce business accounted for 86% of its overall revenue in the first quarter, up considerably from 73% a year ago. Also, the company’s gross margin continues inching upward. The Chinese e-commerce giant is starting to display large operating leverage grounded on its immense top-line growth.
Although the company currently generates the majority of its revenue from China, its international revenues also continue growing at a rapid rate. In the second quarter, international revenues rose by 140% year over year. Alibaba’s presence in the global market is small, suggesting it has a plenty of room to grow further internationally in the years ahead.
Not only Alibaba’s e-commerce business but also its cloud business performed very well. In the cloud business, revenue escalated to 2.4 billion yuan ($358.65 million), representing a surge of 96% year over year. As per the most recent quarter, the company has a total of 17 data centers around the globe with the addition of two centers in Indonesia and India.
On the other hand, the revenue from its entertainment business increased to 4 billion yuan, signifying a surge of 30% year over year. The daily average subscribers of Youku video subscriptions increased more than 100% year over year. The company also publicized it is aggressively focusing on producing original content as it can bring long-term benefits in video entertainment.
China’s e-commerce market is a vigorous market that has entered a new stage of development. The growing use of the internet along with the change in shopping trends has contributed to even faster growth of the leading e-commerce vendors' business.
According to a forecast report from Statista.com, the retail e-commerce market in China is projected to reach $839.5 billion by 2021, up from $376.18 billion in 2016. Given the strong outlook for Chinese e-commerce market, Alibaba appears to be in a great position to gain enormous benefits in the future.
Source: Statista.com
Apart from this, Alibaba has also invested $1.1 billion in Tokopedia, one of Indonesia’s biggest online marketplaces, further accelerating its expansion into Southeast Asia. The Chinese e-commerce giant now holds a minor stake in Tokopedia. As a result, the investment in Tokopedia provides it a strong foothold in Indonesia’s e-commerce market.
Summing up
Despite rising over 170% over the past 18 months, its future still looks bright as rapidly growing online sales globally will continue pushing the stock upward. Moreover, the company is also focusing on other hot growth, such as cloud computing, which will reap fruitful results in the future.
On the other hand, Alibaba’s earnings, revenue and cash flows continue growing at a healthy rate. With the stock price, its price-earnings (PE) ratio has also increased sharply and currently sits at 62, suggesting it is expensive. Alibaba, though, is displaying strong growth in each of its business segments which is sufficient to justify its expensive valuation.
Shareholders should continue holding the stock as its future growth prospects look healthy.
Disclosure: No position in the stock mentioned in this article.
