I’m on vacation until September 6. I wrote this post on August 24 before I left.
On August 17 Alibaba Group Holding (BABA) reported another blowout quarter. Non-GAAP earnings per share climbed 65% and revenue rose 56%.
And… on its conference call Alibaba repeated its guidance for 45% to 49% revenue growth for fiscal 2018.
Below the top line, the numbers were stunningly good too. Core revenue from the company’s e-commerce business rose 58% year over year. Paying customers climbed 16% from the previous quarter. Average revenue per user (ARPU) expanded and active mobile users grew 4% to 529 million from the prior quarter. (It’s hard to grow users when you own as much of the market as Alibaba does.) Revenue from the company’s new cloud computing unit grew by 96% to $359 million. Revenue from digital media and entertainment was up 30%.
On the news, the New York traded shares rose to an all time high. The stock, which is a member of both my long-term 50 Stocks portfolio and my Jubak Picks 12-18 month portfolio, is up 99.3% for 2017 as of August 24. The shares are up 144% in my Jubak Picks portfolio since I added them to that portfolio on October 20, 2015. And, as of August 24, I’m raising my target price to $194 a share.
So what could possibly be the problem with Alibaba?
First, then company has been losing market share in China to competitors such as JD.com (JD) that are willing to sacrifice profits to gain market share. Alibaba’s share of the Chinese business-to-consumer market fell to 56.6% from 60% in the last year.
Second, the company is entering a very costly stage in its fight to expand into markets outside of China against Amazon and against Chinese rivals such as JD.Com. The stage involves building out a logistical network in countries such as Indonesia where it can now take two to three weeks to deliver a package.
Still owning Alibaba is very much worth it, in my opinion. These new markets have extraordinarily low rates of e-commerce penetration and China still has plenty of room to grow. In Indonesia, for example, only 1% of retail sales took place on online in 2016, according to McKinsey. That compares with 8.5% in the United States and 17% in China. And Alibaba, like Amazon, Facebook (FB), and Alphabet (GOOG), is investing heavily in AI technologies that will let it improve targeting of ads and marketing–and earn higher revenues from advertising and financial services.
