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Alibaba (BABA) Q2 Earnings to Top on Core E-commerce Growth

Alibaba Group Holding Limited BABA is set to report second-quarter fiscal 2018 results on Nov 2. Last quarter, the Chinese e-Commerce giant delivered a positive earnings surprise of 25.81%.

The surprise history has been good in Alibaba’s case. The company surpassed estimates ineach of the trailing four quarters, with an average four-quarter positive surprise of 12.16%.

Coming to the price performance, on a year-to-date basis, the company’s shares have rallied 106.9% compared with the industry’s gain of 56.0%.

Strength in Alibaba’s Core E-commerce Business

This segment comprises marketplaces operating in retail and wholesale commerce in China, and international commerce. Revenues in the last-reported fiscal first quarter were RMB43.03 billion (US$6.3 billion), increasing 58% year over year. Revenues are expected to further increase driven by innovation in data technology, widespread application of big data and increasing validation for Taobao and Tmall portals.

Strong Mobile Growth

In the fiscal first quarter, Mobile Monthly Active Users (MAU) were 529 million, reflecting an increase of 24% year over year and 4% sequentially. The number is expected to further expand, driving revenues for the company. This is because of the increased adoption of mobile devices by consumers as the primary method of accessing Alibaba’s platforms. 

Additionally, over the last few quarters, Alibaba has witnessed an increase in monetization rates. The company is building its online marketing inventory on both mobile and PC and is likely to continue to see higher monetization rates, thereby increasing the profits of the company.

Growing Cloud Momentum

In the last-reported fiscal first quarter, revenues were RMB2.43 billion (US$359 million), increasing 96% year over year. The number of paying customers of the cloud-computing business in the quarter was 1,011,000, reflecting an increase of 75% year over year and 16% sequentially.

The figure is expected to further increase in the upcoming quarter driven by an increase in the number of paying customers and higher-than-usual spending by them, reflecting increased usage of services.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or #3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

Alibabahas a Zacks Rank #3 and an Earnings ESP of +2.52%, indicating a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

You could also consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:

NVIDIA Corp. NVDA, with an Earnings ESP of +0.53% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Texas Instruments Incorporated TXN, with an Earnings ESP of +0.42% and Zacks Rank #1.

Extreme Networks, Inc., EXTR with an Earnings ESP of +9.75% and a Zacks Rank #3.

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