Yahoo Finance Alibaba has gone from a pop to a simmer
As the Chinese economy began to slow, excitement about Alibaba’s mammoth IPO has quickly turned to skepticism about the e-commerce giant’s prospects. Even so, the company has been marching along just fine.
Alibaba beat expectations in its earnings report for the first quarter of 2016. It posted revenues of 24.2 billion yuan (about $3.7 billion), exceeding predictions by 4%, according to Bloomberg. The quarter marked annual sales growth of 39%, while net income rose 85% year on year—though that figure means little, as it’s influenced by the company’s restructuring of its film and health units.
The company points to the usual reasons for solid results. E-commerce penetration is increasing in rural areas, and the company has a presence in 14,000 Chinese villages, up from 12,000 the previous quarter. Solid sales growth on mobile ensure that the company won’t get left behind by competitors like JD or Tencent’s WeChat. That in turn ensures that vendors will spend money on advertisements—which make up the bulk of the company’s revenue and profits.
The company’s hidden gem, AliCloud, continues to emerge. The Amazon Web Services-esque cloud provider grew its revenue 145% year-on-year, and now accounts for 8% of the company’s total sales. If the fantastic success of AWS is fair precedent, it’s a new cash cow in the making.
This hasn’t reduced investors’ skepticism of Alibaba. Since the stock’s listing in September 2014 its price has steadily dropped. As of the most recent market closing, it’s priced at $75.82—about 36% down from its November 2014 apex.
Why the skepticism? The business isn’t sinking, but it’s not booming either. That worries some investors who fear that China’s slowing economy will temper consumer spending.
Beyond Alibaba’s cloud computing unit, new areas for growth—namely international expansion and so-called “online-to-offline” services (food delivery, group buying)—haven’t shown immediate signs of promise. Until they do, the company’s core supporters will likely be investors who see e-commerce in China as a safe, steady bet that can weather macroeconomic storms.
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