Alibaba Group Holding Ltd (NYSE:BABA) continues to deliver strong performance.
Despite strong reports for past several quarters, there are many investors who continue to remain skeptical of Alibaba Group Holding Ltd (NYSE:BABA) stock and for various reasons. There are many who doubt its financial statements, especially after it had come under SEC scanner, there are some who are not convinced about the China story and some think that Alibaba stock is trading at very expensive multiples. This is the reason why Alibaba stock is one of the most shorted stock going by the dollars-at-risk. Shorts have continued to pile up on Alibaba this year. According to S3 partners, the dollar value of short interest is up from $9.8 billion at the start of this year to $22.1 billion in mid-August. However, the bet against Alibaba stock has not gone well for the shorts, as Alibaba stock is up by 115% this year alone. Shorts are down by over $10 billion in paper wealth. And the recent earnings report has not helped their cause either.
The Chinese eCommerce giant recently reported its fiscal second quarter earnings. Like the quarters before, the earnings report was much better than expected, with Alibaba delivering handsome beats on both the top and the bottom line. Alibaba reported a non-GAAP EPS of $1.29, 26 cents higher than what analysts were expecting. On the top line, Alibaba continued to report strong growth, with revenue topping analysts estimate by $440 million. This strong performance continues to drive Alibaba stock higher as it enters the "Singles Day" sales.
Strong performance in all the segments.
Alibaba's revenue has grown by 60% from $5.2 billion in last year same quarter to $8.2 billion. More importantly, the company saw strong growth in all its business segments. The core commerce growth, despite the huge size, came in at 63% with China core commerce retail, which contributes over 72% of Alibaba's revenue, growing by 62%. Strong economic performance, rising disposable income, and higher internet penetration will continue to drive Alibaba's eCommerce business in China higher.
Alibaba is also looking to expand its eCommerce presence in other countries especially in South-East Asia and India. Alibaba had recently upped its stake in Lazda by investing over a billion dollars and is one of the largest investors in PayTM mall, one of the significant players in Indian eCommerce segment. Both these region are fast growing eCommerce markets. According to a Google Temasek report, eCommerce in South-East Asia is tipped to grow more than 15x, from $5.5 billion in 2015 to $87.8 billion by 2025. Indian eCommerce segment is expected to become a $60-$100 billion market by 2020 from $15 billion in 2016. So, eCommerce will continue to be a growth driver for Alibaba stock.
But it's not just the eCommerce segment, other business segments including Aliyun, the cloud computing segment is also growing at a rapid pace. Alicloud revenue almost doubled from RMB 1.5 billion in the same quarter last year to almost RMB 3 billion the second quarter. In the first quarter too, cloud computing revenue had grown by a similar measure. However, the segment EBITDA slipped marginally to negative 5%. Alibaba is planning to make huge investments in its cloud computing business as it sees strong growth opportunities. The corporate spending on IT and cloud computing is poised to go up significantly in the coming years.
Alibaba is poised for another strong Singles' Day performance.
The next important event for Alibaba is the upcoming Singles' Day sales on November 11th. Singles' Day is the most significant online shopping day in China and the biggest shopping holiday globally. Last year, total gross merchandise value (GMV) on Singles Day alone was $17.8 billion (¥7 billion), up 24% YoY in US dollars. In 2015, Alibaba's GMV was up by 53% from $9.3 to $14.3 billion. The trend indicates a slowdown in the Singles Day sales growth which is natural given the size effect.
This year too, while the Single Day sales are expected to be strong, the growth is likely to lower. Also, the company is likely to face competition from J.D Com, the other major eCommerce platform in China. One thing which will work in favor of Alibaba will be the fact that, more consumers than last year will be value oriented rather just bargaining for price. This could help both the GMV and bottom line. There is another trend which is emerging in Chinese eCommerce market. More and more customers are looking to buy products from international brands or merchants. Also, this year, 100,000 physical stores will also take part. This should give a major boost to Alibaba's top line.
The question is how to play Alibaba stock going into the Singles Day sales? In the last couple of years, Alibaba stock had rallied going into Singles Day sales, before correcting after the event and then had picked up once again. However, given the strong optimism this time around, a strong singles day sales could drive BABA stock even higher. But given the huge rally in the stock, any disappointment could lead to a correction. Long-term investors should consider buying Alibaba stock on any pullbacks.
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