Alibaba hit a major milestone on 21 March when it achieved gross margin volume (GMV) of RMB3 trillion, and it looks well on its way to achieving its goal of RMB6 trillion of GMV in the financial year ending in 2020. A key part of the next leg of GMV growth is expected to come from cross-border e-commerce and rural e-commerce growth.
One of the company’s most impressive developments has been its ability to dramatically grow mobile monetisation, with mobile GMV growing 98.3% from a year ago in its third-quarter results. This, of course, has also reflected a general trend in China towards greater mobile internet usage. Desktop GMV has been relatively steady over the past four quarters while mobile GMV has grown dramatically.
The other bright spot for the online marketplace operator has been its ability to increase monetisation by improving fill-rates, moving large brands onto the Alibaba platform, and through new value-added services.
One of the major concerns for the stock is the potential for short-term margin drag as Alibaba expands into new growth areas. A number of factors are set to impact margin growth, including its purchase of Youku in December, lower margin businesses such as UCweb and Alicloud, investment in cross-border and rural expansion, and continuing investment in its online-to-offline (O2O) service, Koubei, and in its logistics arm, Cainiao.
The company has just made its biggest overseas acquisition to date by buying a controlling stake in Singapore e-commerce company Lazada Group for about $1 billion. Lazada operates e-commerce platforms in countries including Indonesia, Malaysia, the Philippines, Thailand and Vietnam. Alibaba’s buy is a bet on strong growth across southeast Asia.
Trade and Technicals
Based on recent earnings history, an earnings surprise has generally reliably predicted the immediate share price movement. The exception is the previous quarter. One reason for the last quarter’s poor stock price reaction may be that fears over China’s economic trajectory have dominated the markets for the past nine months. As you can see in the stock price chart, general China concerns have dominated the two most recent sell-offs in the stock. Which means you are buying into China’s macro concerns by owning the stock.
That being said, China’s 2016 economic data has been exhibiting a noticeable uptick as monetary and fiscal stimulus have been hitting the mark. Sentiment has certainly turned on China’s short-term outlook, and an earnings surprise by Alibaba in such an environment could well mean a return to its normal stock price outperformance.
The stock has recovered most of its early 2016 sell-off and a key level to watch is $85, where the stock met significant resistance in November and December. A good earnings estimate beat could push it up to this level, a great earnings beat could see it break through this and push higher.