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Can Strong Cloud Growth Propel Alibaba's (BABA) Q1 Earnings?

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Alibaba Group Holding Limited’s (BABA - Free Report) expanding core commerce and cloud portfolio are expected to perform well in the fiscal first quarter. This will likely be reflected when the company reports fiscal first-quarter 2020 results on Aug 15.

Alibaba’s cloud business has fast emerged as a major contributor to top-line growth.

In the last reported quarter, revenues from its core commerce segment were up 54% year over year to RMB78.9 billion (US$11.8 billion). Revenues from the cloud computing segment also increased 76% from the prior-year quarter to RMB7.7 billion (US$1.2 billion).

Click here to know how the company’s overall fiscal first-quarter performance is expected to be.

Alibaba Group Holding Limited Revenue (TTM)


Let’s Delve Deeper

Innovation in data technology, widespread application of big data, and increasing validation for Taobao and Tmall portals will likely boost revenues from this segment in the to-be-reported quarter and beyond.

Revenues from this segment have been impressive over the last few quarters. Sales growth should accelerate in the fiscal first quarter, driven by an increase in the number of paying customers and improved revenue mix of higher valued-added services.

During the quarter, Alibaba rolled out a number of products based on emerging technologiesof Artificial Intelligence (AI), Machine Learning (ML) and Internet of Things (IoT) to cater to rising demand for cloud architecture, along with data analytics and security in the retail industry.

These products, which are expected to develop a collaborative management platform across various businesses, should drive revenues in the to-be-reported quarter. Also, these products assist the company’s retail clients to implement the “New Retail” concept in business operations.This is another positive for the quarter to be reported.

Markedly, cloud revenues should increase in the quarter, owing to a boost in spending from enterprise customers. The company has been continually adding new features to cloud offerings for driving customer spending. This is likely to aid the to-be-reported quarter. During the quarter, Alibaba Cloud launched many products that should increase its adoption among customers and drive revenues from this segment.

Alibaba’s cloud computing business has been gaining a lot of traction. It is a dominant force in China but has also gained traction in other regions. The company has opened new data centers across the world. These factors are anticipated to bolster the upcoming results.

Given the dominant position of Alibaba’s cloud business in China and aggressive international expansion strategies, we believe that cloud computing will be one of the major growth drivers in the quarter to be reported.

Zacks Rank & Key Picks

Currently, Alibaba carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include Booking Holdings Inc. (BKNG - Free Report) , IAC/InterActiveCorp (IAC - Free Report) and eBay Inc. (EBAY - 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 growth for Booking Holdings, IAC/InterActiveCorp and eBay is currently projected at 12.1%, 20.5% and 9.4%, respectively.

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