Alibaba's Looking For Black Swan Opportunities

Alibaba Group Holding BABA earnings for the period ended Dec. 31. have topped expectations but coronavirus is having a ‘negative impact' on the business with packages not getting delivered on time, and this uncertainty has caused its stock to fall on Thursday.

But on a brighter note, the China e-commerce giant also says coronavirus outbreak, the so-called Black Swan event, is helping to accelerate digital transformation with more online grocery orders and work-from-home experiences.

Fiscal Third Quarter

Revenue for the quarter increased 36% to $23.2 billion (161.5 billion RMB, up from 117.3 RMB) billion a year earlier. According to FactSet, Wall Street expected earnings of $2.28 on revenue of $22.8 billion (RMB159.7 billion). But for the very first time, the Chinese e-commerce giant's cloud business topped RMB10 billion. Net income achieved amounted to 52.3 billion RMB ($7.5 billion). Adjusted earnings of $2.61 a share went up 47% from a year earlier.

But most importantly, active consumers on Alibaba's China retail marketplaces reached 711 million, an increase of 18 million which equals to 2.5%, from the previous quarter. As for mobile devices, active users on mobile devices reached 824 million, an increase of 39 million equaling to 5%. Revenue from its cloud operation jumped 62% to $1.4 million.

Coronavirus The Black Swan

The company is continuing to experience challenges stemming from the outbreak as there's been a delay in employees' return to work after the Lunar New Year holiday, with this celebration also greatly contributing to the pandemia. As a consequence, there is a negative impact on the ability for merchants and logistics companies to resume business as usual.

And management disclosed that the overall revenue growth rate is expected to be negatively impacted in the following quarter.

Revenue from local services expanded 47% before the impact of the virus could be felt. The fact that Alibaba anticipates that there could be negative revenue growth in these categories this quarter "shows the impact of the virus," However, the issues seem to be largely supply-based, which is encouraging for Alibaba's long-term prospects as there are also new opportunities on the consumer end.

Competitors

Meanwhile, its Amazon.com, Inc. AMZN managed to pause Microsoft Corporation's MSFT $10 billion Pentagon contract. A judge has issued a temporary injunction preventing the contract from moving forward until a lawsuit from Amazon is resolved. Amazon's case is President Donald Trump's personal animosity toward Amazon CEO Jeff Bezos and The Washington Post, which Bezos owns.

Overall, it finds the contract to have "clear deficiencies, errors and unmistakable bias." Its other competitor is also doing well, as Shopify Inc's SHOP stock has gained 222% over the last year and its price rose after a strong earnings report on Thursday, showing the company's strong determination to hit the international front. Meanwhile, Walmart Inc WMT has a few clouds on its relatively blue skies as it is shutting down its personal shopping service that allowed New Yorkers to text message orders for home delivery.

Jet black will be down on February 21 due to inability to find adoption or additional investment. So, there is no lack of headwinds in the global industry, but these e-commerce giants are still coping well. For now.

New Possibilities

Management hinted that the challenges brought on by the outbreak could prompt long-term behavioral changes from Chinese consumers and businesses alike. More consumers are ordering groceries from their homes and more employees are choosing to work from home, two trends that Alibaba plans to account for in its various service offerings. But globally, there is the inevitable trend that more and more businesses and more and more customers are opting for a digital life and a digital working style.

Black swan and Tchaikovsky aside, Alibaba is trying to balance investment spending with operational improvements in its core-commerce segment.

Outlook

Alibaba's shares have dropped nearly 5% over the past month, but they did before climb 20% if we look at the past three months. And its revenue did rise 38% year-over-year during a strong quarter. In the release, it showed an increased user engagement and rapid growth in the cloud computing services.

Not to forget that shortly after the outbreak, the company fiercely began procuring medical supplies from all around the globe, donating over 40 million units to affected cities. It is tentatively monitoring how is the situation evolving and also using the opportunity to identify new opportunities to provide support and value that can be incorporated in its business model. And helping customers through difficult times during this one-off pandemic is also expected to contribute to sustainable long-term growth. And let's not forget that the definition of a Black Swan event also psychologically entails that its definition depends upon the observer.

And Alibaba can surely make it work to its own favour by finding new ways to provide value added services to its current and potential customers- and become a White Swan in this scenario.

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