Alibaba narrowly misses on revenue – beats on everything else
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Alibaba narrowly misses on revenue – beats on everything else

At the end of last week, Chinese ecommerce giant Alibaba reported second quarter earnings. Alibaba is often described (only somewhat correctly) as a ‘Chinese Amazon’, and the similarities have never been more apparent: both companies logged a beat on earnings, but narrowly missed the Street’s estimates for revenue. Ignoring that miss, both companies offered very robust results, particularly in the area of cloud computing. And in both cases, investors penalised the stock before reversing their sentiment.

After an initial decline, Alibaba’s share price has appreciated by as much as 11% in the last 5 days

graph 0611 alibaba

Source: Yahoo Finance

Alibaba said that second-quarter revenue came in at $12.39 billion, shy of consensus estimates for $12.49 billion. Although a miss, it’s hard to frame that result as a failure: it represents year on year growth of 54%. Regarding how that revenue is broken down, online retail remains the major driver (accounting for 85% of the total), but cloud computing is on the rise. That’s important: many industry insiders believe the future of tech lives in the cloud, so Alibaba’s 90% year on year growth in this area (to a not-insignificant $825 million) paints a promising picture.

Meanwhile, Alibaba saw much stronger earnings than expected. The company reported earnings per share of $1.40 for the three-month period, easily beating analysts’ predictions of $1.06, and rising from its second-quarter earnings last year ($1.23). The company also saw a 5% rise in mobile monthly active users from the year-ago quarter to 666 million – that, once again, is better than expected (analysts had hoped to see a figure of 634 million).

Alibaba also slashed its guidance for full-year 2019, and now expects around a billion less than analysts predicted. This, no doubt, is a reflection of the pressure mounting on Chinese tech stocks, fuelled by government regulations (in video games, particularly), and the ongoing trade disputes with the US. Taking those factors into account, we might agree with Stephen Guilfoyle, writing at The Street: “this guidance has been seen as optimistic by many.

Disclosure
Dominion holds Alibaba in its Global Trends Ecommerce Fund.


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