The election results are out and we have a new President. During his campaign, President Elect Trump had spoken quite vehemently on his views about trade relations with China. And now, that he is in the Office, Chinese companies are worried about the possible trade disruptions that may occur between the United States and China. Given the surprising election results, analysts are still skeptical of forecasting how the stock market will fare in the near future. But on the day following the announcement of the results, Chinese e-commerce player Alibaba (NYSE: BABA) saw its shares fall 3%.
Alibaba’s revenues for the second quarter grew 55% over the year and 7% over the quarter to RMB 34.29 billion (~$5.14 billion), ahead of the market’s forecast of $5.03 billion. EPS of $0.79 was also ahead of the Street’s forecast of $0.69 for the quarter.
During the quarter, revenues from the Core Commerce segment, which includes marketplaces operating in retail and wholesale segments, grew 41% to RMB 28.5 billion (~$4.3 billion). Its Cloud Computing segment, which includes Alibaba Cloud, saw revenues grow 130% to RMB 1.49 billion (~$224 million). The Digital Media and Entertainment segment revenues increased more than 300% to RMB 3.61 billion (~$541 million). Finally, the Innovation Initiatives and Others revenues grew 78% to RMB 698 million (~$104 million).
Within the Core Commerce segment, revenues from China commerce retail business grew 40% to RMB 24.1 billion (~$3.6 billion). China commerce wholesale business grew 37% to RMB 1.44 billion (~$215 million). International commerce retail business were up 178% over the year to RMB 1.3billion (~$201 million) and International commerce wholesale business revenues grew 11% to RMB 1.5 billion (~$226 million).
Among key metrics, mobile monthly active users (Mobile MAUs) grew 30% to 450 million. Annual active buyers in the China retail marketplaces grew 14% to 439 million.
Alibaba’s Single’s Day Expansion
In 2009, Alibaba had launched its very first Single’s Day sale special. Since the launch, the shopping festival, which happens on 11 November, has become an annual event. In the previous years, the sale had resulted in the highest volumes of transactions. For instance, the sale in 2015 generated $14.3 billion in goods sold by Alibaba alone last year, compared with $5.8 billion generated on Black Friday and Cyber Monday combined. This year appears to be no different.
This year, Alibaba has increased its focus on the sale beyond Mainland China to shoppers in Hong Kong and Taiwan. It is also taking the sale event to the virtual level by featuring an augmented reality game, similar to Pokemon Go, to allow people to chase Tmall’s mascot—a black cat. It released a virtual reality shopping experience to allow consumers to connect their smartphones with a VR headset and make purchases as if they were present in a store in New York City. Shoppers can use mobile apps to see how clothes and cosmetics look on them. Analysts expect that this year, Alibaba’s sale transactions on 11 November will surpass $21 billion.
Alibaba’s Cloud Growth
Like others in the industry, Alibaba too is focused on expanding its cloud offerings. Last quarter saw Alibaba’s cloud revenues grow 130% and becoming one of the fastest-growing units for Alibaba. But the segment is still generating losses. On revenues of $224 million, it reported an operating loss of $60 million.
Alibaba Cloud is also witnessing higher consumer and corporate adoption. During the quarter, paying customers for Alibaba’s cloud offerings grew 13% sequentially to 651,000. To attract more customers, Alibaba has been slashing prices, and in some cases has reduced prices by as much as 50%. Alibaba claims that the price reductions were driven by its passing on savings to end customers. It has been reducing costs through improvement in technology, economies of scale, and measures, such as the launch of a clean energy data center in Northern China to leverage the region’s weather conditions and lower operational costs. Alibaba remains focused on expanding the offering and believes that margins will follow. It is looking to expand Alibaba’s services in international markets in the near future.
It is still too early to say with any uncertainty what the new President will really do with regards to foreign trade and investment. But if his initial speeches are to be believed, then Alibaba would surely be affected by increased trade barriers between the United States and China. Analysts expect Trump’s government to impose increased taxes on goods from China and higher tariffs on Chinese goods that will have an impact on Aliexpress sales. Similarly, higher tariffs on US goods could hurt Tmall Global sales in China. Considering these pressure points, analyst Wedbush has given it a Neutral rating with a $90 target.
For now, Alibaba’s stock is trading at $94.34 with a market capitalization of $235.8 billion. It had fallen to a 52-week low of $59.25 in February this year and had reached a 52-week high of $109.87 in September this year.
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