Strong Earnings Could Send BABA Stock Soaring
Alibaba Group Holdings Limited (NYSE:BABA) announced its third-quarter earnings results on Tuesday with a stunning reversal of analysts’ forecasts, with the BABA stock price soaring as a result.
Alibaba stock surged by more than 10% in pre-market trading, hitting highs unseen since the middle of July. China’s biggest e-commerce company reported sales in the range of $3.5 billion for its second quarter, ended September 2015, which represents a 32% rise compared to last year. (Source: “Alibaba Group Announces September Quarter 2015 Results,” Alibaba Investor Relations, October 27, 2015.) Net income was a robust $3.6 billion.
The key figure was the total transactional value of purchases and sales made on Alibaba’s site, which soared by a very respectable 28% since last year to $112 billion. This represents a $25.0 billion rise year on year.
Most interestingly, gross merchandise volume on mobile platforms grew to 62% of all Alibaba transactions in China. Total revenue from mobile platforms amounted to $1.6 billion, which represents a rise of 183% year over year. But the company’s cloud computing and internet infrastructure segments were also up, with an increase of 128%.
While the Alibaba stock price nosedived by more than 27% since last year, and especially following a scathingly bearish report by Barron’s recently, it looks as if Alibaba has really turned things around now.
Alibaba made giant strides in terms of monetization and revenue growth, with a robust free cash flow stream of $2.1 billion over the course of three months.
Here’s What Alibaba is Doing Right
Alibaba announced last Tuesday that it’s set to open branches in three EU countries over the course of the next few months. While this bit of news barely registered in the media, it has potentially been a massive positive catalyst for the BABA stock price.
Alibaba stock has rallied significantly since a late-September bottom of $57.39, and investors were understandably worried as fears of growing competition and financial problems continued to beset the Chinese e-commerce giant.
Chart courtesy of www.StockCharts.com
But after seeing the BABA stock price crater by more than $117 billion since November of 2014, Alibaba executives seem to have realized that it was time to make some positive changes.
It looks like it paid off.
Alibaba reported it is soon opening up offices in Germany, France, and Italy, in addition to further U.S. expansion to stimulate growth and reassure fearful shareholders and market analysts. (Source: “Alibaba to Open Offices in Europe as U.S. Expansion Continues,” Bloomberg, October 13, 2015.)
Can Alibaba ride this latest wave generated by a positive earnings report and safely navigate an increasingly unstable global economic context?
This will depend on several key factors, and Alibaba may not be able to control these conditions quite as much as it would like.
The big question on everyone’s mind is whether or not Alibaba will be able to thrive in what some analysts are viewing as a rapidly slowing Chinese economy.
As the Middle Kingdom’s previously surging economy continues to cool down, Alibaba has embarked on a campaign of global expansion. As calendar edges ever-closer to Singles’ Day, the biggest shopping day of the year in China, the company is banking on this aggressive global expansion to attract as many consumers and sellers as possible. Alibaba had invented the November 11 holiday back in 2009 as a sort of anti-Valentine’s Day. Data collected since then has revealed that the holiday is a huge earning period for Alibaba, with substantial limited-time deals and promotions used to attract consumers.
Alibaba hopes to continue this success abroad, and it just might work.
Let’s talk about numbers for a second. More than $9.0 billion was generated by Single’s Day for Alibaba in 2014. (Source: “Alibaba Reports $9 Billion in Singles’ Day Sales,” Reuters, November 11, 2014.) If that metric is anything to go by, we should be seeing a significant increase this year if you take into account the aggressive global expansion undertaken by Alibaba.
BABA stock has already overcome the bearish sentiments of analysts in the last few weeks, but there is a great deal of lingering doubt stemming from the ongoing Chinese economic context.
Investor are understandably weary of investing in big-ticket Chinese companies, and Alibaba stock is no exception. U.S. shareholders can’t be blamed for this negativity, as the worrying economic data coming out of China continues to mount. After all, who can forget that it was only months ago that the Chinese stock market appeared to be on the edge of total collapse?
But what of the broader global economy? And how does Alibaba plan to navigate its way in slowing international markets? As emerging markets have begun cooling down, commodity prices continue to crater, and global stock markets lurch from one extreme to another; investors can be forgiven for exercising no small amount of caution when considering where to park their money.
But will they be willing to place their faith in the Chinese e-commerce giant? My guess is they will. Alibaba for its part will of course have to focus on dissuading analysts and investors from bearish sentiments on the BABA stock price.
The Bottom Line for Alibaba Stock
The way I see things, Alibaba has its work cut out for it. But if the company can correctly shaped its international expansion efforts and rides the wave of enthusiasm for the BABA stock price generated by its latest earnings report, it will be a stunning upset for Alibaba bears. With the company utilizing a healthy strategy focused on global reach and the further development of a successful new holiday season, I believe that the Alibaba stock price could soar into 2016.