Alibaba smashes Street’s expectations, defies China slowdown, and raises guidance
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Alibaba smashes Street’s expectations, defies China slowdown, and raises guidance

Chinese ecommerce giant Alibaba smashed the Street’s expectations for the three months ending March 31, beating on top- and bottom-lines as well as showing a strong underlying business. The company’s results will be a welcome piece of news for those investors who have been concerned by recent headlines over a slowdown in the Chinese economy, as will the company’s decision to raise its guidance figures into a territory best described as “extremely confident”.

Alibaba’s share price has increased by 28% year to date

20 05 ecommerce

Source: Yahoo Finance

Here are the figures: Alibaba said that revenue for the quarter came in at 93.5 billion yuan – a 1.8% beat over analysts’ expectations. Meanwhile, earnings outperformed by a greater stretch, coming in at 8.57 yuan per share rather than the predicted 6.5 yuan per share. On the back of these strong results, the company has forecast a sales jump of “at least” 33% for the current year to 500 billion yuan.

What’s it banking on to drive these sales? Its own understanding of ecommerce and consumer preferences. Since it embarked on its cloud business, Alibaba’s retail capabilities have multiplied. The company understands how to make money from recommendations far better now than it did a year ago, and that’s translating into better sales, which, in turn, is translating into a better advertising business.

A main area of outperformance for Alibaba came from its cloud business, which saw revenues surge by 76% to 7.7 billion yuan. That’s a small, but no longer insignificant, part of the whole. And, more importantly, it’s leading the market, accounting for more than half of the Chinese market – all in all, it’s very well positioned for growth. The company’s CEO, Daniel Zhang, spoke directly to this segment of the business in a statement, when he said:

“Our cloud and data technology and tremendous traction in New Retail have enabled us to continuously transform the way businesses operate in China and other emerging markets, which will contribute to our long-term growth.”

Speaking about the ongoing trade disputes between China and the US, vice chairman Joseph Tsai added: “As part of the trade negotiations, China will be importing a lot more. We are floating into the direction of the tide, rather than going against it.”

Disclosure

Dominion holds Alibaba in its Global Trends Ecommerce Fund.


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