According to the research data analyzed and published by Stock Apps, Alibaba stock (BABA stock) has over the trailing one-year period grown by 81.70% as of October 19, 2020. At the same time, its share price has an impressive year-to-date performance (YTD) of 44.89%.
To a great extent, its success has been attributed to the flexibility of its fundamental business model. Unlike US eCommerce giants Amazon and Walmart, Alibaba does not have any physical infrastructure for handling inventory. Rather, it connects consumers to retailers.
Putting the difference in perspective, Macrotrends reveals that Alibaba has only 117,600 employees on payroll. Comparatively, Amazon has more than 700,000.
As such, Alibaba posts a relatively high profit margin from sales than its competitors. Illustrating this, Alibaba’s net income to stockholders margin as of December 2019 was 34.87%, compared to Amazon’s 4.1%.
While Amazon posted $11.58 billion as profit in 2019, Alibaba’s were a remarkable $13 billion. Interestingly, Amazon’s revenue for the year was $280.5 billion while Alibaba generated $56.15 billion.
Alibaba Revenue Surged by 34%, Cloud Computing by 59% in Q1 FY21
Alibaba has also benefitted from increased adoption of eCommerce arising from coronavirus effects on the market. During the first quarter of fiscal 2021 (Q1 FY21), which was from April to June 2020, its revenue surged by 34% totaling $21.76 billion.
Its performance beat expectations as Bloomberg analysts had estimated a 28.8% revenue increase for the period. It was driven in part by Alibaba’s robust growth in digital retail as well as cloud computing.
Cloud revenue grew at a higher rate than overall revenue, 59% year-over-year (YoY), and net income increased by 143% to $6.57 billion. The cloud segment has been facing stiff competition from industry bigwigs including Amazon, Microsoft and Google. Primarily, the growth of this segment was attributed to increasing revenue from the company’s public cloud as well as hybrid cloud business. The International Data Corporation (IDC) states that Alibaba Cloud was the largest public cloud service provider in China for the March 2020 quarter.
According to Alibaba’s fiscal report, there was an increase of 28 million in the number of mobile monthly active users, driving the total to 874 million. On the other hand, annual active consumers increased by 16 million from the previous quarter to reach 742 million.
Moreover, based on a report from Seeking Alpha, Alibaba’s digital retail marketplace has 90% penetration in developed areas while in less developed areas, it is only 45%.
A major highlight of the Q1 FY21 had to be the record sales posted at the 618 shopping festival. On that single day, June 18, 2020, sales across the shopping platform amounted to $98.52 billion.
eCommerce Accounts for 87% of Alibaba’s Total Revenue
Courtesy of the surge in BABA stock, the Chinese eCommerce giant’s valuation as of October 19, 2020, had grown to $820.01 billion. It significantly widened the gap between Alibaba and Tencent, which is valued at $659.73 billion.
Just like Alibaba, Tencent has registered impressive growth rates in 2020, outperforming the market. Tencent’s revenue increased by 29% in Q2 2020 with adjusted earnings rising by 28%. Its stock has rallied over 50% over the trailing 12-month period.
When it comes to revenue generation, Alibaba has four core businesses. These include eCommerce, cloud, innovation initiatives and digital media and entertainment. In the June quarter, its eCommerce segment generated almost 87% of its total revenue and profit.
Alibaba Cloud, which is the largest cloud platform in Asia, accounted for 8% of the total revenue. Innovation and initiatives generated 1% while digital media and entertainment accounted for 4% of the total.
Comparatively, Tencent makes money from online games, digital ads, social networks and fintech and business services. Its online games unit was the largest in the last quarter, accounting for 34% of revenue. It houses some of the top games globally including Honor of Kings, PUBG Mobile and Peacekeeper Elite.
Online advertising accounted for a 16% share of total revenue while social networks contributed 23% to the total. On the other hand, the fintech and business service segment accounted for 26% of the total.
In terms of growth, Tencent posted double-digit revenue increments across all its four core segments. Gaming revenue was in the lead with a 40% rise while fintech and business revenue surged by 29%. Social networks also rose by 29% as online advertising grew by a relatively modest 13%.
While Alibaba’s eCommerce and cloud business segments posted remarkable growth, digital media was up by 9% while the innovation initiatives segment was reduced by 6%.
Analysts project an increase of 29% in Tencent’s revenue and a 31% growth in earnings for the full year. On the other hand, the Alibaba estimate is 32% growth in revenue and a 16% rise in earnings for the year.