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Alibaba's Shares Surge 13.3% on Strong Revenue Outlook

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China's biggest e-commerce company Alibaba Group Holding LimitedBABA provided a strategic update during its recently held Investor Day in Hangzhou, China. The company provided strong sales growth outlook that was well above analyst projections.

The investors seem overwhelmed with the announcement as Alibaba's share price increased more than 13% in yesterday's trading, reaching a high of $143.70 and eventually closing at $142.34.

Also, in the last one year, shares of Alibaba increased 86.8% compared with the Zacks Electronic Commerce industry's gain of 51%. This outperformance can largely be attributed to the company's near monopoly in the Chinese e-commerce market and strengthening efforts to diversify its business beyond it.

Major Highlights

In her keynote address, Chief Financial Officer Maggie Wu said that revenue growth in 2018 is expected to be in the range of 45- 49%. This figure exceeded FactSet consensus which implies a growth rate of just 37%.

Additionally, Wu said Alibaba will continue to diversify its business beyond e-commerce. The company will make increasing investments in Cloud, media and marketing which will help in driving revenue expansion in the years to come.

Focusing on its cloud computing business, Wu told investors, "Profitability is still not the priority for our cloud business".

Moreover, Wu added, Alibaba will now report another important metric namely "active consumers in addition to the number of buyers. Also, Alibaba will now disclose customer management revenue instead of just online marketing revenue.

These new disclosures will give investors a better understanding of the company's increasingly diverse customer base.

Strengthening Position Outside E-commerce and China

To combat the slowing e-commerce growth in the country, the Chinese e-commerce goliath has been taking a number of steps to diversify its business.

It has been making sincere efforts to invest in cloud computing, media, artificial intelligence (AI), among others to expand its presence in other growing markets. We note that Alibaba faces tough competition from Amazon AMZN in the U.S. but has successfully prevented Amazon from encroaching into its home turf.

To set things in the right direction, in June Alibaba bought a 18% stake in Lianhua Supermarket chain to strengthen its presence in the brick-and-mortar space. In April, Alibaba agreed to buy a controlling stake in online retailer Lazada for about $1 billion to expand their businesses in the South East Asia region.

In March, Alibaba bought a majority stake in India's Paytm E-Commerce. Apart from buying stakes in e-commerce companies and pushing its AliExpress site in emerging markets, the company is also exploring the offline retail space.

In February, the company entered into a strategic partnership with Bailian Group to leverage on its big data capacities and to explore new retail opportunities across outlet design, technology research and development, customer relationship management, supply chain management, payment and logistics.

It has also partnered with Intime Retail Group Co Ltd founder, Shen Guojun, in a $2.6 billion bid to privatize Intime and purchased a stake in grocery chain Sanjiang Shopping Club Co Ltd. It has also invested $1.25 billion in Ele.me, a food-delivery service in China.

We also see Alibaba's growing interest in the global logistics business. The company has been exploring this space with investments in couriers and warehouses in recent years. It has opened its own logistics service known as Alibaba Logistics.

It seems that Alibaba is leaving no stone unturned, in case the online retail industry hits a roadblock.

Alibaba Group Holding Limited Price and Consensus

Alibaba Group Holding Limited Price and Consensus | Alibaba Group Holding Limited Quote

Zacks Rank & Stocks to Consider

Currently, Alibaba carries a Zacks Rank #3 (Hold). Other better-ranked stocks in the industry are Autobytel Inc. ABTL and Mercadolibre, Inc. MELI , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Autobytel Inc. delivered a positive earnings surprise of 41.98%, on average, in the trailing four quarters.

Mercadolibre, Inc. delivered a positive earnings surprise of 26.74%, on average, in the trailing four quarters.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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