Alibaba beats the Street, defying trend in Chinese companies this week
Wednesday wasn’t a great day on Chinese stock markets, as “at least” 20 companies (according to Bloomberg) warned that full year earnings for 2018 would fail to meet expectations. One company that defied this trend in stunning fashion was ecommerce titan Alibaba, which not only posted a quarterly-earnings beat, but pointed to successful expansions into a number of new areas, such as cloud computing, that bode extremely well for its future.
The trajectory of Alibaba’s share price over the first month of 2019 has been incredible
Source: Yahoo Finance
Questions have been raised, in recent weeks, over the health of China’s economy – and that’s hurting consumer demand in the country. Some companies in some sectors (as our Luxury Fund Manager, Paolo Baccanello, argued here yesterday) are protected from this decline in consumer demand. Others aren’t. So why did Alibaba outperform where others failed? Largely, because it’s been driving into lucrative new industries such as rural Chinese markets (a traditionally underserved population), cloud services, and entertainment.
For the third quarter of 2018, Alibaba reported earnings per share of $1.77 – a clear beat against both the year-ago-quarter’s $1.53 and analysts’ expectations of $1.68. In terms of net income, the company brought in $4.50 billion for the three months – a 33% year on year rise. It also saw a 3% increase in operating income from last year’s third quarter, coming in this time at $3.90 billion. The one less-than bright spot for the company was revenue, where it reported $17.06 billion. It’s hard to frame this as a failure – in the same period last year, Alibaba reported $12.36 billion in revenue – but it’s still less than Wall Street hoped for, as consensus estimates stood at $17.68 billion.
The company’s share price rocketed on the news, as Alibaba revealed that it saw major year on year revenue increases in a number of its most important categories. Amongst them: core commerce was up 40%, cloud computing rose by an incredible 84%, digital media and entertainment increased 20%, and “innovation initiatives” climbed by an impressive 73%. Looking to growth in the near-term, CEO Daniel Zhang was clear about where the company planned to pursue it. On a conference call, he said: “China’s economy is facing some uncertainty, but we do see opportunities. One of the key regions we will stay focused on in the near term is Southeast Asia.”
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