Alibaba Earnings Q2 2016: A Big Mobile Number Sends Alibaba Stock Soaring

  • Alibaba earnings Q2 2016 blew past estimates, sending Alibaba stock over 8% higher in pre market trade.
  • Its mobile app was the star.
  • The company is back in expansion mode again, buying into a Google-backed startup.

Alibaba (NYSE:BABA) blew earnings expectations away in its second quarter, announced this (October 27) morning, and investors responded by bidding the stock up by more than 8%, in pre market trade (at the time of publishing).

The company said it earned $1.40/share on revenue of $3.488 billion, based on an exchange rate of 6.355 Yuan to the dollar. The big news was revenue from mobile phones, which came in at $1.655 billion, 183% of the figure a year ago.

The company said $112 billion of merchandise was moved in its marketplaces during the quarter, good for 28% YoY growth. Unlike Amazon (NASDAQ:AMZN), which acts as a retail store and buys in bulk, and stores merchandise until it is sold, most of Alibaba’s transactions go to consumers or businesses directly from the manufacturer.

Volume transacted through its Tmall retail site was $41 billion, and the company said 386 million people used its marketplaces during the year ending in September, a rise of 19 million from its June report. The company said its mobile Taobao app was responsible for the increase.

There had been hints from Apple (NASDAQ:AAPL) and other companies that the Chinese consumer was doing well in the last quarter, even while the industrial sector was slowing, and the strong Alibaba number could aid other Chinese stocks as well this week, likeBaidu (NASDAQ:BIDU).

For those worried about whether its Aliyun cloud can compete with Amazon, Alibaba reported $102 million in cloud and Internet infrastructure revenue for the quarter, a rise of 128% from a year ago. The comparable figure for Amazon was $2.1 billion.

Still, investors were very pleased by the result. One US publication said Alibaba Stock goes "nuts," with the stock rising over 9% in pre-market trading to move over $83, from about $76 the day before. This is comparable to the after-hours bumps Alphabet Inc-A (NASDAQ:GOOGL) and Amazon achieved last week, when their numbers beat expectations.

Some traders, and not just who read Amigobulls, seemed to have a hint that this was in store. Options to buy stock at higher prices jumped sharply in price on Monday afternoon, but even these trades anticipated a rise of just 8% in the stock’s price, short of what actually happened post the earnings announcement.

Goldman Sachs analysts were among those who kept faith with the stock, maintaining a buy rating with a 12-month price target of $94. MKM Partners and Deutsche Bank have also maintained buy ratings.

Bullish investors may have also taken a cue from executive chairman Jack Ma, who became expansive again this month, putting $200 million of Alibaba’s money to work  in Magic Leap, a “cinematic reality” start-up in Florida whose previous funding round had been led by Google.

It’s the kind of move that a confident company makes, not a troubled one. Expect further moves higher in Alibaba stock over the next few weeks.

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