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Can Strong Cloud Growth Propel Alibaba's (BABA) Q2 Earnings?

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Alibaba Group Holding Limited’s (BABA - Free Report) expanding core commerce and cloud portfolio are expected to positively reflect on fiscal second-quarter results, slated to release on Nov 1.

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 44% year over year to RMB99.5 billion (US$14.5 billion). Revenues from the cloud computing segment also increased 66% from the prior-year quarter to RMB7.8 billion (US$1.1 billion).

Click here to know how the company’s overall fiscal second-quarter results are expected to be.

Let’s Delve Deeper

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

Revenues from this segment have been impressive over the last few quarters. This trend is expected to have continued in the fiscal second quarter. Sales growth is likely to have accelerated, 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, Machine Learning and Internet of Things 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 have drivenits 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 expected to have been another positive for the quarter to be reported.

Markedly, cloud revenues areexpected to have increased 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 have continuedin the to-be-reported quarter. During the quarter, Alibaba Cloud launched many products that mighthave increased its adoption among customers and driven 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 reflect onits upcoming results.

Given the dominant position of Alibaba’s cloud business in China and aggressive international expansion strategies, cloud computing is expected to have been one of the major growth drivers for the quarter to be reported.

Alibaba Group Holding Limited Revenue (TTM)

 

Zacks Rank & Key Picks

Currently, Alibaba carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include Itron, Inc. (ITRI - Free Report) , Booking Holdings Inc. (BKNG - Free Report) and TripAdvisor, Inc. (TRIP - Free Report) . While Itron sports a Zacks Rank #1 (Strong Buy), Booking Holdings and Ambarella carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Itron, Booking Holdings and TripAdvisor is currently projected at 25%, 13.08% and 17.03%, respectively.

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