Two days after short-seller Citron Research favorably compared Alibaba  (BABA - Get Report) to (AMZN - Get Report) , the Chinese e-commerce giant is seeing a post-earnings reaction very similar to the one Amazon saw following its own strong Q1 report. In both cases, enthusiasm about their tremendous revenue growth has overshadowed any worries about their also-tremendous spending growth.

On Friday morning, Alibaba reported March quarter (fiscal fourth quarter) revenue of $9.87 billion and non-GAAP EPS of $0.91, topping consensus analyst estimates of $9.25 billion and $0.85. In dollars, annual revenue growth -- benefiting from both strong organic growth and M&A -- accelerated to 76% from the December quarter's 66%. In RMB, it accelerated to 61% from 56%.

Jack Ma's company also guided for its revenue to grow over 60% in fiscal 2019 (ends in March 2019) on an RMB basis, and over 50% after backing out the impact of deals to take full ownership of food delivery/local services platform (announced in April) and obtain a majority stake in the Cainiao logistics platform (announced last September). Prior to earnings, the consensus, which might not have fully accounted for the deal, was for 41% RMB-based sales growth.

After opening lower on Friday, shares have gradually move higher and are up 3.9% to $189.91 as of the time of this article. They remain 8% below a January peak of $206.20, but are up 65% over the last 12 months.

Here are key highlights and takeaways from Alibaba's March quarter report and earnings call:

  1. Gross merchandise volume (GMV) for Alibaba's massive Taobao and Tmall Chinese marketplaces, now only disclosed on an annual basis, rose 40% in fiscal 2018 to $768 billion (that exceeds the GDP of all but 17 countries). On an RMB basis, growth improved to 28% from fiscal 2017's 22%. Though the Chinese e-commerce market's growth is helping, those are remarkable numbers given Taobao and Tmall's size. For comparison, top rival (JD - Get Report) saw 38% 2017 GMV growth, but its annual GMV is less than 30% of Taobao/Tmall's.
  1. Just as impressive is how well Alibaba's Taobao/Tmall revenue growth continues exceeding its GMV growth by a healthy margin. "Customer management" revenue for the company's China's Commerce Retail segment, which is mostly ads, rose 35% in RMB (dollar-based growth rates aren't available), after having grown 39% in the December quarter. Commission revenue (driven by Tmall) rose 39%, after having risen 34% in the December quarter. The segment's "Other" revenue, boosted by the launch of Alibaba's Hema supermarkets and the purchase of department store chain Intime, rose over 10-fold.
  1. In comments that Facebook (FB - Get Report)  could probably appreciate, Alibaba largely attributes its "Customer management" revenue growth to strong ad price increases, with ad click growth playing a lesser role. The company's shopping data and ad-targeting abilities, together with intense competition among merchants to reach shoppers, continues paying dividends. User growth also doesn't hurt: "Annual active consumers" for Alibaba's Chinese retail marketplaces rose 22% in fiscal 2018 to 552 million.

  1. Alibaba also saw healthy e-commerce growth on platforms other than Taobao and Tmall. Booming sales for Alibaba's Lazada Southeast Asian online marketplace helped International Commerce Retail revenue rise 79% to $632 million. China Commerce Wholesale revenue grew 41% (28% in RMB) to $300 million. International Commerce Wholesale revenue, driven in part by the website, grew 24% to $271 million. In March, Alibaba announced it's investing another $2 billion in Lazada, after having already upped its stake in the platform to 83% last year.
  1. The AliCloud cloud infrastructure platform (#1 in China) is still growing rapidly: Alibaba's Cloud Computing revenue rose 123% to $699 million. Digital Media & Entertainment revenue, driven by the Youku Tudou online video platform and the UCWeb mobile browser, rose 47% to $840 million. Innovation Initiatives and Others revenue, which includes the YunOS operating system and AutoNavi mapping unit, grew 19% to $158 million.
  1. Alibaba's giant investments in offline commerce, cloud data centers, logistics and video content (among other things) are weighing on its bottom line: While revenue rose 61% in RMB last quarter, its non-GAAP EPS only grew 32% and its free cash flow (FCF) a mere 7%. Excluding stock compensation, Alibaba's costs and expenses rose 82% in RMB; in dollars, they nearly doubled to $8.4 billion. On the earnings call, CFO Maggie Wu signaled that big investments will continue weighing on profits in the near-term.
  1. The company's cost of revenue especially grew sharply: Excluding stock comp, it equaled 53% of revenue last quarter, up from 40% a year earlier. Alibaba partly attributes this increase to spending on inventory for Lazada and "New Retail" businesses such as Hema and Intime, as well as Cainiao investments. Alibaba's operating expenses (sales, marketing, R&D, etc.) grew sharply on an absolute basis, but fell as a percentage of revenue to 30% from 32%. And stock comp fell to 10% of revenue versus 11% a year ago.
  1. Alibaba's non-e-commerce operations are generally losing money. The Cloud Computing, Digital Media and Innovation Initiatives segment all posted negative adjusted EBITDA last quarter. And while the Core Commerce segment remained quite profitable, its adjusted EBITDA margin fell to 43% from a year-ago level of 59% thanks to investments in offline retail, Lazada and Cainiao. If not for the fact that he's competing against Alibaba, Jeff Bezos would undoubtedly approve.
  1. Though its bottom line remains highly dependent on them for now, Alibaba's top-line growth depends much less on Taobao and Tmall than it once did. Only 55% of last quarter's revenue came from the China Commerce Retail segment's "Customer management" and commission revenue, down from 65% a year earlier. The segment's "Other" revenue accounted for 10% of Alibaba's total revenue; Cainiao accounted for 5%, and the Cloud Computing segment is now up to 7%.
  1. On the call, Alibaba vice chairman Joseph Tsai didn't sound worried about a potential trade war with the U.S.. "[O]ur Chinese consumers are going to find alternative ways to bring imports into the country through our platform," he insisted. As it is, there are reasons to think the U.S. and China will reach some kind of compromise before large new tariffs go into effect.

The Big Picture

Following its Friday gains, Alibaba is trading for 22 times a fiscal 2020 EPS consensus of $8.52. And that multiple would likely be in the high teens or lower if not for the company's heady spending pace. For a firm that's seeing such tremendous organic growth in businesses that possess big competitive advantages relative to smaller rivals, and which also has big opportunities in adjacent businesses where its resources and scale position it well to succeed, such a valuation looks fairly reasonable.

Jim Cramer and the AAP team hold positions in and Facebook for their Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AMZN or FB? Learn more now.