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Will Strong Cloud Growth Propel Alibaba (BABA) Q2 Earnings?

Zacks Equity Research
Updated

Alibaba Group Holding Limited’s BABA expanding core commerce and cloud portfolio is expected to have performed well, which will likely be reflected when the company reports fiscal second-quarter 2018 results on Nov 2.

Alibaba witnessed significant traction and growth in China and International commerce retail business. Notably, the company’s cloud business has fast emerged as a major contributor to top-line growth.

In the last reported quarter, revenues in its core commerce segment were up 61% year over year to RMB69.2 billion (US$10.5 billion). Revenues from the cloud computing segment increased 93% to RMB4.7 billion (US$710 million).

Click here to know how the company’s overall fiscal Q2 performance is expected to be.

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Let’s Delve Deeper

Alibaba’s core commerce segment comprises marketplaces operating in retail and wholesale commerce in China, and international commerce. Innovation in data technology, widespread application of big data, as well as increasing validation for Taobao and Tmall portals will continue to expand revenues in this segment.

The Cloud Computing segment, which comprises Alibaba Cloud offering a complete suite of cloud services, is in top gear. Alibaba’s management remains quite positive about the cloud computing business, as more and more businesses are shifting their servers and broadband subscriptions to cloud computing technology in order to streamline costs.

Revenues from this segment have been impressive over the past few quarters. Sales growth accelerated in the fiscal first quarter, driven by an increase in the number of paying customers and improved revenue mix of higher valued-added services.

Lately, Alibaba’s cloud computing business has been gaining a lot of traction. It is a dominant force in China, but has also gained traction in North America and other markets. Alibaba’s cloud computing business also has a presence in India, as it continues to expand its fast-growing business unit.

Recently, Alibaba Cloud partnered with Asia-Pacific Broadcasting Union Sports Network (ABU Sports Network) to offer its cloud computing infrastructure and cloud services for helping ABU Network work more efficiently. The deal provided an innovative cloud-based solution to the ABU Sports Network for transmitting live video as well as audio of the Asian Games (held in Indonesia from Aug 18 to Sep 2) to territories such as Fiji, Cambodia, and Mongolia. The move indicates that Alibaba is working on boosting the cloud platform and expanding its presence in the world of sports.

In addition, Alibaba has been introducing new products based on the emerging technology of Artificial Intelligence (AI), Machine Learning (ML), and Internet of Things (IoT) to cater to the rising demand for cloud architecture, along with data analytics and security in the retail industry.

These products assist the retail clients of the company to implement its “New Retail” concept in business operations.

Given the growing position of Alibaba’s cloud business in China and aggressive international expansion strategies, we believe that cloud computing will be one of the major growth drivers in the long run.

Alibaba Group Holding Limited Revenue (TTM)

 

Alibaba Group Holding Limited Revenue (TTM) | Alibaba Group Holding Limited Quote

Zacks Rank & Key Picks

Currently, Alibaba carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector are Expedia EXPE, IAC/InterActiveCorp IAC and AMETEK, Inc. AME. While EVINE Live sports a Zacks Rank #1 (Strong Buy), both IAC/InterActiveCorp and AMETEK carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Expedia, IAC/InterActiveCorp and AMETEK is currently pegged at 16.1%, 15% and 10.97%, respectively.

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