Alibaba Should Maintain Its Growth Momentum In The Fourth Quarter Results

Investors will keenly track Alibaba (NYSE:BABA) on Thursday, January 29th, when the Internet retail giant reports its fourth quarter results for 2014. We expect the company to post solid results driven by a seasonally strong quarter in Q4, which accounts for about one-third of its annual sales.  We also expect it to display high growth in its active buyer base, which could cross 350 million (in our view). Alibaba’s single days shopping festival on November 11th recorded gross merchandise sales worth $9.3 billion on its Chinese and international marketplaces, and this represented an increase of 60% as compared to the prior year results.

Alibaba’s profitability has come down in the recent past, and we expect this trend to persist during the fourth quarter as the company is making huge investments in the acquisition of new businesses, the development of mobile platform and cloud computing business, as well as in marketing and other growth initiatives.

Over the long-run, we are bullish on Alibaba’s growth prospects, as we think there is considerable room for expansion both within China as well as in international markets. We expect the company to play a more stronger role in the e-commerce markets of Russia, Brazil, Middle East, etc. in the coming years. We’d be interested to know more about the management strategy against these various growth opportunities during the earnings call.

We will revisit our $93 price estimate for Alibaba’s stock, post the earnings release.

See our complete analysis for Alibaba

Chinese Retail Marketplaces Will Continue To Display Stellar Growth

Alibaba’s business on its Chinese retail marketplaces – Taobao and Tmall – comprises for around 80% of its overall revenues. There is immense growth potential still ahead in these marketplaces, as the overall GMV in the Chinese online shopping market is estimated to expand from RMB 1,892 billion in 2013 to RMB 5,634 billion by 2017, according to iResearch. ^[1]

This increased demand will be propelled by rising Internet penetration and an increasing number of Internet users shopping online. While these metrics were seen at 46% and around 300 million shoppers respectively at the end of 2013, we expect them to rise to over 65% and 700 million over the long-run. Rising per-capita consumption, an expansion in product categories, and an improvement in delivery efficiency, quality control and mobile payment security, are additional factors that will spur spending in China.

Strengthening Mobile Business Along With Expansion Across Geographies And Businesses Adds To Upside Potential

We expect rapidly rising mobile monetization to be a source of long-term growth for Alibaba. The share of mobile GMV in overall transactions on Alibaba’s Chinese marketplaces  increased from 15% in Q3 2013 to 36% in Q3 2014, and we expect this share to cross 40% in the fourth quarter.  Mobile revenue rose by 1020% in Q3 2014, driven by around 140% increase in mobile active buyers. We expect the same trend to persist during the fourth quarter as well, albeit at narrower rates.

International expansion is an area where we expect Alibaba to invest heavily in the coming future. With rising international interest in Alibaba, we expect the company to leverage its strong brand recognition to expand its share in the global e-commerce market. Recently, reports indicated that Alibaba will set up a global version of its C2C marketplace Taobao, and we’d be looking for more details around this international expansion strategy over the earnings call. In addition, Alibaba is aggressively making investments in other businesses to fuel its long-term growth. In January 2015, Alibaba invested in KuaiDi Dache (a taxi booking app provider in China) and AdChina (a digital marketing platform). Moreover, Alibaba is set to pick up 30% stake in an Indian e-commerce business ‘Paytm’ for $575 million (according to news), and we’d be interested to know more about such transactions during the earnings call.

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1. China Online Shopping GMV Soars 47.1%, iResearch, August 11, 2014 [↩]