Alibaba (BABA -1.14%) has become a behemoth of a company. For the third quarter, the company reported 104% year-over-year growth in its cloud revenue and 100% year-over-year subscriber growth for its media and entertainment business.
In the past year, Alibaba's stock has risen nearly 60% to $175.38. While it might sound crazy to buy a stock after such a big run up, you may be surprised at how much room this still-reasonably priced stock has left to run. The real reason to love Alibaba stock is its consistent and impressive revenue growth that refuses to slow down.
Alibaba's large revenue growth has excited its investors in the past few years. Image source: Alibaba.
Revenue growth so big you can't deny it
Alibaba couldn't be in a better position for continued growth; it's the most popular e-commerce company in the world's most populous country that's seen a sharp rise in online shopping in recent years.
The latest quarter marked Alibaba's seventh straight quarter of its revenue growing by more than 50%. For the period, revenue grew a stunning 56% year over year to $12.8 billion.
With China's population of about 1.4 billion vs. the U.S. population of just 325 million, Alibaba will continue to benefit from the ongoing trend toward online shopping in the country. Last year, China as a whole saw an increase of 32.2% in online sales to reach $1.1 billion, according to the China Ministry of Commerce.
China's total retail sales are expected to grow 10% annually to reach $7.2 trillion by 2020, according to the Ministry of Commerce. Meanwhile, online shopping's share of total retail will rise to 24% by 2020, according to Euromonitor. Based on those estimates, China's total online retail sales could hit $1.7 trillion in 2020.
This is good news for Alibaba because its Tmall e-commerce platform that operates in China claims 51.3% of all e-commerce sales in the country, according to Emarketer. The closest competitor is JD.com with 32.9% of the pie. However, JD.com has been growing at a faster pace than Alibaba in recent years. In 2014, JD.com held just 17.7% of the market share vs. Tmall's 54.6% share, according to Analysys International Enfodesk.
While the bulk of Alibaba's revenue is from its China e-commerce business, it's also showing significant growth internationally. Last quarter, Alibaba's international retail business grew 93% year over year in revenue to $727 million. Alibaba's international businesses include AliExpress, which lets Chinese branded companies sell their items to consumers outside the China market, as well as Lazada, an e-commerce firm that was launched in 2012 to serve Southeast Asia.
Data source: BABA Revenue (Quarterly) by YCharts
Can Alibaba hit its 56% revenue growth target?
In its last financial report, Alibaba raised its full-year revenue growth expectations to between the range of 55% and 56%, up from its original guidance for 45% to 49% annual growth. The company said it was raising its guidance due to the strong performance in its first three quarters. The full-year report for the 12 months ended in March will come out in early May.
While this type of growth may raise some eyebrows, Alibaba already hit the same target last year when it reported 56% revenue growth for the 2017 fiscal year. So it's not out of reach for a second year, especially since the company has continued to report quarterly revenue growth over 50%.
The company showed a number of encouraging signs in the last quarter that bode well for its full-year report. First, the company reported that its mobile monthly active users (MAUs) increased 31 million over the December quarter bringing the total to 580 million. This one is important because the more time users spend on Alibaba's apps, the more money they spend.
Second, Alibaba is continuing to push its New Retail strategy that has been making waves in China as it helps to update old brick-and-mortar retail models to help improve sales. Alibaba is hoping more and more companies in China will ask for Alibaba's help to improve their physical store shopping experiences. Alibaba's access to large troves of data on customers, as well as new technology, makes it a valued partner for struggling retailers in China.
Alibaba said New Retail revenue was grouped into the core commerce segment's "other revenue" category, which generated $781 million for the last quarter. While this was only 6% of overall revenue, the "other revenue" category increased by an incredible 525% year over year.
When you take note of Alibaba's consistently impressive revenue growth over the past few years, the run up in its stock makes more sense. While some investors might be scared to jump in a stock that has shot up 60% in the past year, China's e-commerce growth estimates and the growth of Alibaba's various businesses indicate that this company isn't done posting above 50% revenue growth.
