Alibaba has reported an increase in profit and revenue that has exceeded the expectations of analysts and investors following a surge in online sales. In the first quarter report, earnings almost doubled compared to the same period a year ago to reach a figure of $2.2 billion. Revenues increased by 56% to reach a figure of $7.4 billion. Consequently the price of the stock rose. So far this year Alibaba’s share price has appreciated by 87%. In contrast S&P 500 has only risen by 9% while Amazon has appreciated by 28%.
Shift to mobile
The impressive results from Alibaba can be attributed to an increase in spending by the growing Chinese middle class which is now estimated to have reached 130 million people almost all of whom own a cellphone. Since peer-to-peer selling is enabled on Alibaba’s Taobao app as well as on the website and other marketplaces such as Tmall, the Chinese retail giant has been able to capture a big slice of online spending in China.
Alibaba has also benefited from data it has obtained on consumer behavior. Alibaba has also added video streaming offerings and other incentives and all this has help to keep its customers engaged and loyal.
The surge in revenue and profits shows that Alibaba has overcome the stagnation that was witnessed two years ago when the online retail giant recorded its slowest rate of growth in revenues in over three years after a shift to mobile by consumers. This sent shares to levels close to the 2014 listing price. Over time however Alibaba has overcome the challenge by making huge steps in enhancing the experiences of users on its mobile apps. Currently the number of monthly active users using Alibaba mobile apps is over 520 million.
Growing Chinese middle class
The growing middle class in China and their increased purchasing power and appetite for luxury goods and cross-border products with high margins has also been to the benefit of Alibaba. This is a trend that is likely to continue.
“If you believe China is going to be a lot bigger in a decade than it is today, and that the consumer in China will spend more money than they do today, this company will benefit,” Lead Edge Capital’s managing partner, Mitchell Green, said.
One of the challenges that Alibaba continues to face though is a reputation for selling pirated and counterfeit goods. Last year it was put back on a U.S. list of marketplaces notorious for counterfeiting.