Alibaba Earnings Shows Big Jump in Revenue

Aug 15, 2019
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The US-China trade war hasn’t spooked the Chinese consumer, is the story of Alibaba’s (NYSE:BABA) most recent earnings report. 

The e-commerce giant posted robust growth for its last quarter ending June, that defied the shadow of the economic trade war that looms large before China’s economy. The company reported $3.10 billion in earnings, up approximately 27% year-over-year, on $16 billion in revenue. Revenue from cloud computing, another important growth area for the company, rose 66% to $1.13 billion. Ele.me, Alibaba’s food delivery business, saw 137% revenue growth year-on-year the company reported.

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Alibaba also said that its active users are up to 674 million, a 20 million increase from last quarter. Of those active users, more are logging on from less developed parts of China, as the company reported that 70% of new users came from areas outside of major urban centers.

Alibaba also said that it is planning on delaying its IPO in Hong Kong given the anti-China protests in the city.

Patriotism, Plenty of Insulation

Despite a number of signs that would point to Alibaba reporting mediocre earnings, the company is continuing along on at a pace that has impressed many analysts.

There are two likely reasons for this. The first is a campaign among locals to “Buy China”. For as much as Trump likes to say “Buy American”, there is also a grassroots campaign that’s an effective counterpart to get Chinese to root — and buy — for the home team. Since Alibaba’s Taobao and Tmall largely source domestic products that in turn have a domestic supply chain, tariffs aren’t going to be the same drag as they would be for a US retailer such as Amazon (NASDAQ:AMZN) or Wal-Mart (NYSE:WMT). Alibaba’s earnings were consistent with retail sales in China that showed shoppers continued to spend, according to reports (Alibaba’s close rival JD.com posted results recently with a similar upwards trend line). 

Next up is cloud computing. For a nation as big a China, with such a dynamic app ecosystem, the cloud services market isn’t as competitive as that in a Western country. Even though they are technically allowed in China, Amazon’s AWS and Microsoft’s (NASDAQ:MSFT) don’t have the same footprint in-country as Alibaba and Tencent (HKG:0700T) which effectively have carved up the market into a virtual duopoly. As China’s app ecosystem shows no sign of slowing down, cloud computing will be a layer of stalwart insulation for the company’s bottom line. 

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Post earnings, Alibaba is up 2.7% at the middle of the New York trading day at $166.43.

This will be the Alibaba’s last earnings report before its founder and chairman Jack Ma retires to let current CEO Daniel Zhang take things over in September.

 

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