Will Cloud, Core Commerce Propel Alibaba (BABA) Q3 Earnings?

Alibaba Group Holding Limited (NYSE:BABA) is scheduled to report fiscal third-quarter 2018 earnings on Feb 1 after market close.

Alibaba’s expanding core commerce and cloud portfolio is expected to steal the show.

Alibaba’s core commerce segment comprises marketplaces operating in retail and wholesale commerce in China, and international commerce. Revenues in the last-reported fiscal second quarter were up 63% year over year to RMB46.46 billion (US$6.98 billion).

The innovation in data technology, widespread application of big data and increasing validation for Taobao and Tmall portals will continue to expand revenues in this segment.

The Cloud Computing segment, which comprises Alibaba Cloud offering a complete suite of cloud services, is in top gear. Alibaba’s management remains quite positive about its cloud computing business as more and more businesses are shifting their servers and broadband subscriptions to cloud computing technology in order to streamline costs.

Revenues from this segment have been performing well for the last few quarters. In the last-reported fiscal second quarter, revenues from this segment increased 99% to RMB2.98 billion (US$447 million). Sales growth accelerated in the second quarter, driven by an increase in the number of paying customers and improved revenue mix to higher valued-added services.

Lately, Alibaba’s cloud computing business has been gaining a lot of traction. It is a dominant force in China, but it is also ramping up its Cloud Service, Aliyun, in North America and other markets. Only last month, Alibaba brought its cloud computing business into India, as it continues to expand its fast-growing business unit.

Also, according to market research firm, Gartner, Alibaba’s cloud sales soared 126.5% to $675 million in 2016 from $298 million in 2015. Given the growing position of Alibaba’s cloud business in China and aggressive international expansion strategies, we believe that cloud computing will be one of its major growth drivers in the long run.

Recently, Forbes mentioned that the cloud computing market will be worth $162 billion in 2020 from $67 billion in 2015, at a CAGR of 19%. The robust growth in the cloud computing market bodes well for Alibaba.

Zacks Rank & Other Key Picks

Alibaba carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the technology sector are Applied Materials (NASDAQ:AMAT) , Teradyne, Inc. (NYSE:TER) and Expedia (NASDAQ:EXPE) , each sporting a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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