What's going on?
On Tuesday, Chinese ecommerce giant Alibaba announced that its profit and revenue massively beat Wall Street’s expectations and raised its prediction for future sales, causing the stock to jump about 3%!
What does this mean?
After a strong third quarter, Alibaba said its revenue will increase by 53% in 2017, a huge amount for a company of its size. About 90% of Alibaba’s revenue in 2016 came from its core ecommerce businesses, but the company’s future revenue growth will likely be supported by its big push into video streaming services (think: Amazon Prime) and cloud computing.
Why should I care?
The bigger picture: Content bundling is an increasingly common corporate strategy.
Some of today’s biggest corporations are trying to keep their customers on the hook by combining digital content with other services. For example, American wireless carrier Sprint announced on Monday that it bought a stake in Jay Z’s music streaming service, Tidal, and will pass on content “perks” to existing cellular customers (AT&T likely has similar plans in mind for its acquisition of Time Warner). Amazon also did something similar with Amazon Prime, bundling together its expedited shipping service with a video streaming platform. Alibaba’s big investment in digital media is just the latest example.
For the stock: There’s some skepticism concerning Alibaba’s growth rate.
Citing a lack of transparency in its accounts, some investors say they’re unconvinced by Alibaba’s stellar figures (i.e. they don’t trust their numbers). However, most investors seem confident in the stock and are excited by the company’s growth prospects (which, apart from its new initiatives, also have a good deal to do with the continued prosperity of the Chinese consumer).