Alibaba signals uptrend on strong mobile revenue growth

The Chinese e-commerce company Alibaba Group Holding Limited (BABA) reported its fiscal 2016 fourth-quarter earnings, which were below the analysts’ estimates. However, as discussed below, the strong revenue growth, and in particular the impressive increase in the mobile GMV (Gross Merchandise Volume) and cloud computing revenue, continues to keep the stock bullish. The shares of Alibaba closed at $79.41, up 0.27% on Monday.

During the fiscal 2016 fourth-quarter, the company’s revenues increased 38.8% to RMB 24.18 billion ($3.8 billion), from RMB 17.425 billion ($2.74 billion) in the similar period of 2015. The revenues were higher than the analysts’ estimate of $3.58 billion. The net income for the fourth-quarter was RMB 5.314 billion ($824 million), compared to RMB 2.87 billion ($450 million) in the year-ago similar period. The non-GAAP net income for the quarter ended March declined 1% to RMB 7.635 billion ($1.184 billion), from RMB 7.741 billion ($1.20 billion) in the fourth-quarter of fiscal 2015. In spite of recording a small decline in the non-GAAP net profit, the market participants are enthusiastic about the future prospects of the company.

Economy and Stock

Segment wise, the retail market revenue of RMB 18.34 billion ($2.844 billion) was 41% higher on a y-o- y basis. Similarly, on a y-o- y basis, the mobile revenue registered a splendid growth of 149% to RMB 13.084 billion ($2.029 billion). The company is a late entrant into the cloud computing business. However, it did not deter growth. Alibaba recorded a 175% y-o- y increase in revenue to RMB 1.066 billion ($165 million). The cloud computing business is expected to bring in revenue of more than $1 billion by 2018.

The mobile commerce application Taobao achieved a DAU (Daily Active User)/MAU (Monthly Active User) ratio of 40% in March. On a y-o- y basis, the business to consumer (b2c) online retail platform Tmall Global reported a 180% increase in the GMV.

Koubei, the joint venture service with Ant financial, saw payment volume to the tune of RMB 21 billion ($3 billion), transacted through Alipay, in the fourth-quarter of fiscal 2016. In April, the company spent $1 billion to acquire a controlling stake in Lazada, a reputed e-commerce platform of Southeast Asia. The acquisition provides access to 560 million consumers in the region.

At the end of fiscal 2016, the free cash flow of the company stood at RMB 51.279 billion ($7.95 billion). Furthermore, at the end of fiscal 2016, the company had 423 million active buyers in the China retail marketplace, up from 407 million at the end of fiscal 2015. The company stated that it is on track to hit $1 trillion GMV. Thus, it can be understood that the share price has a higher probability of going up in the near future. The share price of Alibaba is trading above the 50-day moving average of 76.24. The RSI indicator bounced off the half way mark last week and is pointed upwards.

Thus, it is prudent to purchase a one touch call option binary option contract at this point in time. The next major resistance for the stock is at 85. The chart also indicates a major support at 72.50. Thus, a target below $85 should be chosen for the trade. Likewise, a four week time span is recommended for the expiry period.

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