Alibaba Q1 - Strong Cloud Growth

Last week Alibaba reported their latest numbers. Like most tech companies, it beat expectations for both the top and bottom line. Revenue for the quarter was up 34% and net income increased 124%. The profit number is rather volatile though due to all of their investments in other companies.

The core of the Alibaba business is online retail, which had revenue of $34 billion and profits of $7.2 billion. Second for Alibaba is their cloud division which had revenue of only $1.7 billion, up 59%, but made a loss of $48 million. The division should be profitable soon, and then continue to see exponential growth. The US cloud market is eight times as big as the Chinese market, so the expectation is for the Chinese market to grow much quicker than the US for the next few years.

The most valuable thing to Alibaba is their 874 million monthly active users. The hardest part of sales, in general, is getting customers to your product. For Alibaba, they already have a captive market. That provides a huge amount of opportunity to up-sell existing users. To do that, Alibaba has invested in a whole host of companies. Most of these companies are still loss-making, but they only need one or two home runs for the whole exercise to be worth the current losses.

For a global e-commerce company, Vestact backed Amazon over Alibaba because we felt it was a less complicated company. Over the last 12-months, Amazon is up 85% and Alibaba is up 50% - both solid returns. If you want a company with a greater focus on Chinese economic growth though, Alibaba is a good option.