Why Alibaba Investors Should Hold

The Chinese ecommerce giant Alibaba Group Holding Ltd. (NYSE: BABA) recently reported its earnings results for the fourth quarter of fiscal year 2016. The ecommerce firm posted an 85 percent increase in profit, but still failed to meet the analysts’ expectations. Alibaba’s revenue edged up by 39 percent, in comparison to the same quarter in the previous year. The ecommerce juggernaut’s core business stayed strong during the given quarter, but its new ventures were unstable. We believe that a number of the company’s long term potential is hidden in the new acquisitions of the Chinese ecommerce company.

Market experts were looking forward to a more impressive performance by the newly purchased businesses of Alibaba. The company’s net income stood at $826 million, below the forecasts of analysts. Moreover, the ecommerce giant pointed out that its Taobao Marketplace managed to earn a substantial profit after 7 years.

The Vice Chairman of Alibaba Group Holding Mr. Joe Tsai pursuaded investors to be patient with regards to the performance of the newly purchased businesses. The Alibaba executive stated that new initiatives at any firm typically take approximately 5 to 7 years to achieve a more stable position.

After wisely bolstering the core ecommerce business of the company, Alibaba has now quickly grown into other segments, such as on-demand services, media, and entertainment. During the previous month, the ecommerce giant has made a massive investment in the Southeast Asian ecommerce startup called Lazada Group. Furthermore, the ecommerce titan has also made a $1.25 billion investment in Ele.me, which is a food delivery service.

One of the latest ventures of Alibaba which has begun to pay off is in the cloud computing segment. According to the Chinese company’s Vice Chairman, long term investments will normally take a number of years before they will ultimately generate profits. Mr. Tsai stated that,“The ability to remain patient is a competitive advantage.”

In order to boost the investors’ confidence when it comes to Alibaba’s newest ventures, the company’s CFO Ms. Maggie Wu broadcasted that the firm will boost the transparency of its business by providing annual revenue guidance. The ecommerce titan will also issue cost structures as well as margins of the new businesses at that time.

With fast growth anticipated in the mobile business of Alibaba, the company seems to be ready to snatch the largest chunk of mobile revenue by the end of the current year. The bullish movement of currencies in the recent past has aided the BABA stock to regain stability. After the market saw significant turmoil at the beginning of 2016, as well as the summer of the previous year, the Chinese yuan has displayed some indications of stability, gradually recovering compared to the greenback.

With its rapid expansion within its home country, Alibaba is also looking forward to double cross border trade. Yet, this may take some time to be employed. The effect of the company’s plans may be positively evident on the share price of Alibaba, but the upcoming quarterly financial results will not be greatly affected by them. In addition, the strong demand for foreign goods in China will also become indicative of higher revenue for the ecommerce giant in the near future.

Online shopping in the Asian country has stayed strong, regardless of the market slowdown at the beginning of 2016. With this, it is anticipated that all major ecommerce firms can reports strong figures in the first quarter of fiscal year 2016. The gross merchandise volume of Alibaba has reached 3 trillion yuan in March 2016, and aspired to hit another milestone by fiscal year 2020—the 6 trillion yuan mark. Furthermore, the ecommerce giant also aims to use the significant potential latent in the rural areas in its home country for that specific purpose.

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