- By Harsh Jain
Alibaba Group Holding Ltd. (BABA) has been a solid performer in 2017 as its stock price has appreciated over 115% year to date. The Chinese e-commerce giant continues growing at a rapid rate and its impressive bull run will not end anytime soon.
The e-commerce giant reported spectacular third-quarter results on Nov. 2. In the third quarter, not only did it manage to surpass analysts" estimates on both the top and bottom lines, but also posted its fastest revenue growth of 63% year over year since its initial public offering (IPO).
The intrinsic value of BABA
Annual revenue growth chart
The company"s top-line growth from its core e-commerce businesses continues to grow at a healthy rate due to the expanding Chinese middle class, which in turn increases consumption. Apart from its core e-commerce segment, the cloud business displayed remarkable growth. The e-commerce giant delivered year-over-year growth of 99% in cloud sales to $447 million.
Revenue distribution of 3rd-quarter by segment
Although Alibaba"s cloud business is not yet profitable, its prospects look very strong. The Chinese cloud market is just getting started and is projected to grow at a rapid pace in the future. The company appears to be in a good position to gain enormous benefits going forward considering its leading position in the market.
With time, Alibaba will likely get many opportunities to expand its footprint in the international markets. Although the international market is crowded with well-established players like Amazon (AMZN), it will still get a chance to secure a strong position in the continuously growing cloud market.
Annual e-commerce revenue by region
The company is also steadily growing engagement on its mobile applications. It currently has almost 550 million monthly active users (MAUs), up from 529 million in the second quarter. As a result, the improved engagement will eventually result in more purchases on its e-commerce platforms.
On the other hand, Alibaba"s recent Single"s Day evernt was a huge hit. The company"s sales escalated to over $5 billion in the first 15 minutes. In comparison, it took approximately an hour to reach $5 billion in sales last year.
For the entire day, the e-commerce giant generated over $25 billion in gross merchandise volume, representing a surge of 40% year over year and exceeding its own estimates by an extensive margin of $2.3 billion. In addition, the majority of the transactions were done through mobile.
In addition, the company recently announced it will invest approximately $2.9 billion in Sun Art Retail Group Ltd. (HKSE:06808), a Chinese hypermarket operator, as it moves into the offline retail market. While the company already has a leading position in the Chinese e-commerce market, in now plans to take hold of the offline retail market.
Alibaba"s long-term plan is to integrate physical stores with data-driven technology and personalized services as it is well aware of the fact offline shopping will continue to play a vital role for numerous products in the future. In all, the deal will allow Alibaba to offer a seamless online as well as offline experience to customers.
Although shares of Alibaba have displayed fiery growth over the past 12 months, it still has massive potential to continue climbing upward.
Currently, the company is investing heavily in several growth areas, which might hurt its margins in the near term, but it will eventually improve.
As a result, shareholders should continue their long-term journey with Alibaba and consider adding more on every dip as its future looks promising.
Disclosure: No positions in the stocks mentioned in this article.
This article first appeared on GuruFocus.
The intrinsic value of BABA