Chinese e-commerce conglomerate Alibaba (BABA) first issued its record $25 billion IPO on the NYSE in September 2014. At the time, there was much fanfare from anxious investors eager to buy shares of the company. However, since then, Alibaba's public sentiment has fallen. Since its IPO, Alibaba's share price has mostly fallen, reaching a historic low of $79.54 per share on May 5th. Nevertheless, despite Alibaba's underperformance, CEO Jack Ma remains extremely bullish about the company’s prospects. Not surprisingly, Alibaba’s strong quarterly earnings report reinforced this notion. The company obliterated earnings and revenue estimates, thereby reaffirming the belief that the sky is the limit for Ma's Alibaba.
According to its Q4 earnings report, Alibaba’s revenue increased 45%. While all revenue growth is seen as positive, this result put to rest many shareholder growth concerns; it also showed that while Chinese economic growth has slowed, Alibaba has not suffered from decreased consumer spending. While Alibaba primarily operates within China, it is gradually expanding to other markets, specifically India. Its growing worldwide presence has helped Alibaba's management diversify company assets and remain immune to an ailing Chinese economy.
Another key feature of Alibaba’s recent earnings beat relates to its mobile advancement. Chinese citizens, especially those living in rural areas, have turned to mobile devices for shopping, instead of computers. This is because smartphones are more flexible than computers. Instead of relying on Internet connections, consumers can utilize widespread cell signals to shop for online goods. Alibaba's mobile activity increased 77% this past quarter, whereas mobile revenues quadrupled. Capitalizing on rural markets was a large concern of Alibaba investors, so this development proves a great relief to shareholders.
Although Alibaba has accomplished impressive growth over the past year, many questions remain about its future. At the moment, Alibaba’s multiple e-commerce platforms account for 80% of online sales in China. Since the company has yet again increased its market share, via China's rural population involvement, there is little room for further domestic expansion. As such, it will be important for Alibaba to pursue new and aggressive marketing campaigns in developing countries.
Another Q4 investor concern pertains to Alibaba's decreased merchandise volume on its Taobao and Tmall markets. The former is China's largest direct-to-consumer platform, which is similar to eBay. Taobao’s growth fell from 43% in Q3 to 36% in Q4, signifying a 7% Q/Q decrease. Moreover, Alibaba announced it would not hire new employees in the upcoming year. This has led investors to believe Alibaba's operating expenses are too high. However, Alibaba's management has been careful to point out that it pursued the same policy in 2012 in a positive effort to maximize innovation.
Despite minor negative factors, investors have little to worry about when it comes to Alibaba. The company is highly diversified, pursuing expansionary strategies, and establishing strong footholds in some of the world's largest markets. Alibaba’s future is bright.