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Can Strong Cloud Growth Propel Alibaba's (BABA) Q4 Earnings?

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Alibaba Group Holding Limited’s (BABA - Free Report) expanding core commerce and cloud portfolio are expected to reflect on fiscal fourth-quarter results, slated to release on May 22.

The cloud business has fast emerged as a major contributor to top-line growth. Currently, cloud computing is emerging as a key technology to fight the battle against coronavirus. This technology is seeing higher usage globally as it allows data interoperability in a scalable, cost-efficient way by data collection, processing, analyzing and sharing across platforms.

In the last reported quarter, revenues from the cloud computing segment increased 62% from the prior-year quarter to RMB10.7 billion (US$1.54 billion). Also, revenues from its core commerce segment were up 38% year over year to RMB141.5 billion (US$20.3 billion).

The Zacks Consensus Estimate for fiscal fourth-quartercloud computing segment revenues is pegged at US$1.7 billion, indicating an improvement of 12% from the year-ago reported figure. However, the consensus mark for core commerce revenues is pegged at $12.4 billion, indicating a decline of 39.2% from the year-ago reported figure.

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

Delving 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 the cloud computing segment in the to-be-reported quarter.

Revenues from this segment have been impressive over the last few quarters. Sales growth is likely to have got a boost, driven by an increase in the number of paying customers and improved revenue mix of higher valued-added services.

During the quarter, Alibaba’s cloud unit provided data on coronavirus and its diagnosis. Applications developed by cloud experts and researchers from its subsidiary, DAMO Academy, are expected to provide the necessary support to medical professionals across the globe in combating the virus spread.

Moreover, it has been making all efforts to provide medical workers across the world with advanced cloud-based apps to help in the battle against the coronavirus.

These steps taken by the company highlight the growing importance of the cloud business, which is likely to have boosted revenues in the quarter.

Alibaba rolled out a number of products based on emerging technologies of 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 driven its revenues in the to-be-reported quarter.

Markedly, cloud revenues are expected to have increased in the quarter, owing to an increase in spending from enterprise customers. The company has been continually adding new features to cloud offerings for driving customer spending.

Its customer base expanded in the Asia-Pacific region, driven by portfolio strength. The expanding clientele is likely to have driven net sales of this segment in the quarter.

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 on its 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 in the quarter to be reported.

Alibaba Group Holding Limited Revenue (TTM)

 

Zacks Rank & Other Key Picks

Currently, Alibaba carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the broader technology sector include Wayfair Inc. (W - Free Report) , MONOTARO (MONOY - Free Report) and Inphi Corporation (IPHI - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth for Wayfair, Inuvo, and Inphi is currently projected at 23.04%, 17.2% and 37.7%, respectively.

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