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Will Strong Cloud Growth Propel Alibaba (BABA) Q4 Earnings?

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Alibaba Group Holding Limited’s (BABA - Free Report) expanding core commerce and cloud portfolio are expected to steal the show as the company reports fiscal fourth-quarter 2018 results on May 4.

Alibaba witnessed significant traction and growth in China and International commerce retail business. Notably, the company’s cloud business has fast emerged as a major contributor to its top-line growth.

In the last reported quarter, revenues from its core commerce segment were up 57% year over year to RMB73.2 billion (US$11.3 billion). Revenues from the cloud computing segment increased 104% to RMB3.6 billion (US$553 million).

Click here to know how the company’s overall fiscal Q4 performance is likely to be.

Let’s Delve Deeper

Alibaba’s core commerce segment comprises marketplaces operating in retail and wholesale commerce in China, and international commerce. Innovation in data technology, widespread application of big data, and increasing validation for Taobao and Tmall portals will continue to expand revenues in this segment.

The Cloud Computing segment, which comprises Alibaba Cloud offering a complete suite of cloud services, is in top gear. Alibaba’s management remains quite positive about its cloud computing business, as more and more businesses are shifting their servers and broadband subscriptions to cloud computing technology in order to streamline costs.

Revenues from this segment have been impressive since the past few quarters. Sales growth accelerated in the third quarter, driven by an increase in the number of paying customers and improved revenue mix of higher valued-added services.

Lately, Alibaba’s cloud computing business has been gaining a lot of traction. It is a dominant force in China, but is also ramping up its Cloud Service, Aliyun, in North America and other markets. Alibaba has also taken its cloud computing business to India, as it continues to expand its fast-growing business unit.

Just last month, Alibaba partnered with Istanbul-based B2B services provider, e-Glober to offer its cloud services in Turkey. Alibaba has expanded overseas to Singapore, Indonesia and Malaysia in Southeast Asia; Frankfurt, London and Paris in Europe; New York and San Mateo in the United States; Dubai in the Middle East, as well as Seoul, Tokyo and Sydney. It currently has more than 2.3 million customers worldwide.

Given the growing position of Alibaba’s cloud business in China and aggressive international expansion strategies, we believe that cloud computing will be one of its major growth drivers in the long run.

In a recent report, Gartner projected the public cloud market to reach $411.4 billion by 2020. We believe that Alibaba, with its ongoing initiatives, is well poised to grab the growth opportunity.

Zacks Rank & Key Picks

Alibaba currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the technology sector are Internap Corporation , Etsy, Inc. (ETSY - Free Report) and Littelfuse, Inc. (LFUS - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings per share growth rate for Internap, Etsy and Littelfuse is projected at 2%, 17.3% and 12%, respectively.

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