Alibaba's Amazon-like Transformation Is Paying Off Big Time - TheStreet

Alibaba (BABA) - Get Report beat market expectations in the third quarter with sales jumping more than 50%, driven by its digital media, entertainment and cloud computing businesses.

The Chinese e-commerce giant saw sales jump 54% year-on-year to $7.7 billion for the three months ended on Dec. 31, exceeding the consensus of $7.3 billion by analysts polled by FactSet. Non-GAAP diluted earnings per share came in line with expectations at $1.30.

In reporting the latest quarterly results, Alibaba management took time during the call to highlight the company's digital transformation to a data company, much like Amazon (AMZN) - Get Report , which has been building up its cloud and digital businesses as well as its core e-commerce business.

As China's internet growth slows down and the Chinese e-commerce industry becomes more saturated, Alibaba increasingly looks to create a diverse set of revenue streams while hoping to realize the synergies between its assortment of investments in cloud computing, media assets and offline retail.

Alibaba shares rose 2.84% to $101.18 in midday Tuesday trading.

The Hangzhou, China-based company saw its biggest growth come from the digital media and entertainment segment, which reported a 273% revenue increase, while the cloud computing segment enjoyed a 115% revenue expansion. Innovation initiatives and core commerce segments each enjoyed revenue increases of 61% and 45%, respectively.

Alibaba recorded $254 million revenue for its cloud business Aliyun during the quarter, reflecting a 115% year-over-year growth. Alibaba said its top priority for Aliyun remains expanding market leadership in an intensely competitive space where Amazon and Alphabet's (GOOGL) - Get Report Google offer similar services such as computing, data storage and cloud security.

The company launched data centers in Japan, Germany, the Middle East and Australia during the quarter with help from a number of parties including Softbank. 

To compare Aliyun with AWS is a bit apples to oranges due to the sheer difference in size. That said, AWS in growing at a remarkable clip as well.

Net sales for AWS for the quarter ended on Sept. 30 is $3.23 billion compare to $2.08 billion for the same quarter in 2015, a 55% increase. Amazon reports Feb. 2.

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Commenting on a strong quarter, Alibaba CEO Daniel Zhang said on a conference call with analysts that the company is "driving the age of 'New Retail,' which leverages big data and innovation to provide a seamless online and offline experience for nearly half a billion mobile monthly active users."

Alibaba said mobile monthly active users on its China retail marketplaces rose by 43 million from the previous quarter to 493 million, while the number of paying customers to its cloud computing business rose to 765,000 from 651,000.

"The main driver of the strong growth is from two things, first is from the growth in traffic, which you can see the growth in mobile monthly active users this quarter and also people spend more time on our mobile app because of the interactive engagement. The second driver of the revenue growth is from the technical improvement which drives higher the pixel rate," said Daniel Zhang, director and chief executive officer of Alibaba on the earnings conference call Tuesday morning.

As part of its earnings release Alibaba said its Koubei unit, a local services joint venture with Ant Financial, has completed a $1.1 billion equity financing led by Silver Lake, CDH Investments, Yunfeng Capital and Primavera Capital. Koubei processed RMB73.1 billion (US$10.5 billion) in payment volume through Alipay, Alibaba's PayPal- (PYPL) - Get Reportlike service, during the December quarter.