Alibaba Group (NYSE:BABA) easily topped fiscal third-quarter expectations on the top and bottom lines, but investors may already pricing in a banner fiscal fourth quarter, too.
The Chinese telecommunications titan has been hampered in recent months by severe restrictions in the country due to Covid-19 — restrictions that were abruptly lifted in December. In other words, too late to meaningfully impact third-quarter results.
Yet, net income for the quarter of 46.82bn yuan smashed the 34.02bn Street expectations.
Even before the results were posted, Morgan Stanley had named Alibaba its “top pick” in the Chinese tech sector for the first time in three years.
Meanwhile, even though Alibaba’s quarterly revenue of US$35.92bn (247.76bn yuan) was up 2% year over year and beat expectations of 245.18bn yuan, sales from its China commerce division declined 1% to 169.99bn yuan.
Gross merchandise volume was down too, which the company attributed in part to a surge in COVID-19 cases in China that resulted in supply chain and logistics disruptions.
With the restrictions lifted, the company believes the wind is at its back.
“Looking ahead, we expect continued recovery in consumer sentiment and economic activity,” CEO Daniel Zhang said. “We are focused on driving growth for our customers amid the competitive landscape, and creating sustainable, longterm value for our shareholders.”
Another promising sign is Alibaba’s improving profits. The company trimmed losses in each of its businesses in the December quarter, including in its logistics arm Cainiao and its cloud division.
Head in the clouds
One key business to watch is Alibaba’s cloud arm. The company reported revenue of 20.18bn yuan for the fiscal third quarter, a 3% increase year on year but a slowdown from its 4% gain last quarter and the 30% jumps seen earlier.
Cloud computing makes up 8% of Alibaba’s revenue but could represent a significant growth opportunity, according to analysts.
To that end, Alibaba announced earlier this month that it is developing its own answer to Open AI’s ChatGPT that could be folded into its products.
On an earnings call, Zhang said the company wants to capture this market opportunity and highlighted generative AI applications, which require a tremendous amount of data processing power in order to train the AI itself.
That’s where Alibaba’s cloud division comes in.
“We expect to see exponential growth in demand for [computing] power,” as these technologies develop, Zhang said.
Alibaba shares opened higher but were down 0.7% approaching midday in New York.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
Follow him on Twitter @andrew_kessel