Alibaba Raises Hopes For China

Alibaba May 2016

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What's going on?

Alibaba, the mammoth Chinese e-commerce company, reported better than expected revenue and profit for the first quarter on Thursday the stock jumped 4% in response.Some people took it, broadly, as a good sign for China overall.

What does this mean?

Revenue rose 39% versus a year earlier a pretty strong number in the face of slowing Chinese economic growth (yes, Chinese growth seems to be rebounding lately but, for most of the past 12 months, growth was slowing). A huge increase in sales on mobile devices helped drive Alibabas revenue growth and shows that the company has been able to manage the transition to mobile well (it also shows just how important mobile is to e-commerce platforms).

Why should I care?

The bigger picture: This suggests that people in China (on average) are doing pretty well. Alibaba is sometimes used as a proxy to determine the health of the Chinese consumer. So, when Alibabas sales are higher than expected, some investors think that signals that Chinese consumer spending is still increasing. Which would, of course, be good for the Chinese economy.

For stocks: And a strong Chinese shopper would be good for many western companies. Companies in a variety of industries – from Starbucks to Volkswagen to Apple – are relying on future sales growth coming from a growing Chinese middle class. However, such a comparison between Alibaba and others ignores the fact that foreign companies could be treated quite differently than domestic companies by Chinas authoritarian government (like, Facebook being banned in China). Interestingly, this is one of the main reasons that billionaire investor Carl Icahn recently sold his significant stake in Apple (not that Apple is likely to get banned, but the government could make it very difficult for Apple to sell there).

Originally posted as part of the Finimize daily email.

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