Alibaba Group Holding Ltd could be set for a period of rapid growth ahead and could be a safe long-term bet.
- Alicloud is expected to deliver outstanding growth over the next 3 years.
- Alibaba's push to leverage its two streaming platforms via content partnerships will boost earnings.
- Alibaba continues to effectively monetize its growing user base.
The push into the cloud services market has proved a revelation for a number of companies such as Microsoft (NSDQ:MSFT), International Business Machines (NYSE:IBM), Amazon (NSDQ:AMZN) etc. as the global public cloud services market is expected to be worth nearly $300+ billion over the next few years. So it comes as no surprise that Alibaba (NYSE: BABA) is making huge strides to expand its cloud offering beyond China after reporting rapid growth in cloud computing during its Q3 earnings report. Here's why BABA stock may be set for rapid growth ahead.
Alibaba, made its first foray into the Japanese cloud market early this month via a joint venture with Softbank. This move shows that the company is firmly on track to deliver on its promise to launch four new data centers in Japan, Germany, Australia and the United Arab Emirates.
Alibaba takes a Page out of Amazon's Playbook
This move is a directly out of Jeff Bezos’ Amazon playbook: Initially, Amazon was a solely an e-commerce platform, prior to making the move into content and cloud services, which has spurred unprecedented growth for Amazon. Amazon Web Services, outpacing its rivals is the clear market leader. While a similar level of success is not guaranteed for Alibaba, the push beyond its e-commerce marketplace business into media and cloud hosting is a massive boon for investors.
Despite the robust performance of the e-commerce platform, which generated a record $1 billion in less than 5 minutes on Black Friday, Jack Ma, realizes the need to be proactive and diversify the company’s revenue streams. He recently revealed his desire to turn Alibaba into a one-stop-shop to service the needs of both businesses and consumers.
Alicloud, Alibaba’s cloud services, is predicted to mimic a similar growth pattern as Amazon Web Services (AWS) during its ‘teething stage’. Many expect Alicloud to break-even during 2017 and continue to generate momentum, hitting the $3 billion sales figure in 2019.
The Rush to claim the Content Crown
Content has been earmarked as another key growth driver for Alibaba, it owns two of the largest streaming platforms, Youku.com and Tudou.com. China is the fastest growing media market in the world (in absolute dollar terms), estimated to expand by around $100 billion within the next 3 years.
So, it’s reasonable for investors to expect the e-commerce giant to announce more partnerships in the near future after it recently struck a three-year licensing partnership with Oriental DreamWorks to bring animated movies to Chinese viewers. (See Also: How Safe Is Your Investment In Alibaba Stock? Alibaba Group Holding Ltd (NYSE:BABA) )
Short-Term Pain but Long-Term Gain
Alibaba’s road to success is riddled with uncertainty not least in the US, as the effect of potential protectionist policies from Donald Trump as well as his seemingly tough stance on China could dislodge one of Alibaba’s key growth markets as the e-commerce giant has a significant part of its business tied to trade in the U.S higher tariffs on Chinese goods.
Consequently, Alibaba's share price could soften over the near term, as participants may use Alibaba as a proxy short on China until there's a semblance of policy clarity surrounding Donald Trump’s position on China, however, any softening in the share price could provide an attractive entry level for investors.
Alibaba’s key metrics show robust performance not only limited to its ability to monetise its users effectively, the growth of revenue per actual active buyer (revenue/actual active buyer) is predicted to continue and the e-commerce giant's efforts to diversify its revenue beyond e-commerce makes it a 'safe bet' over the near-to-long-term.
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