Alibaba investors drive stock price up, despite diminishing revenue

(FinancialPress) — Alibaba Group Holidng Ltd.‘s stakeholders were not shaken by the  company‘s latest earnings report, despite it sporting some red flags.

BABA shares rose 3.5% after its Q4 earnings report went public.

This comes as somewhat of a surprise to markets, as the report showcased the first drop in the company‘s operating income in close to 3 years. The report also showed that, for second quarter in a row, profit missed analyst estimates.

The phenomenon could be partially attributed to Alibaba‘s current immense popularity in the stock market. Forecasts for revenue and top line figures were all positive, so investors may have chosen to willfully ignore the potential causes for concern that the report sported.

With the rise, BABA stock in on course to match its record value, logged in January.

This was the lowest operating profit reported by the company since September 2016. Its new units of digital media and entertainment, cloud computing and innovation initiatives all saw a rise in losses. The collective loss amounted to $1 billion – 33% more than the same quarter last year, and 3% greater than the previous quarter. Alibaba‘s new businesses are bleeding money.

An enticing growth projection of 60%, or 50% after acquisitions are accounted for, may have swayed investors to hold onto their stocks and even to acquire more. Analyst estimates have the same figure at 42% – a much more conservative figure.

Alibaba’s new businesses are increasingly losing more money, and it moving into the retail business will certainly hurt its bottom line in the short term. In the report, the company said:

“Increasing mix of New Retail revenue inside Core Commerce will structurally change the margin profile of the Core Commerce segment.”

In layman‘s terms, top-line will hurt growth diminishing marginal returns.

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