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Why Attention Is Focused on Alibaba’s Segment Results

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Commerce carries Alibaba’s weight

Alibaba’s (BABA) revenues originate from four main segments—Core Commerce, Cloud Computing, Digital Media/Entertainment, and Innovation Initiatives/Others.

Of these four operating segments, Core Commerce is the largest, contributing 86% of the company’s overall revenues in fiscal 1Q18. This segment posted 58% revenue growth, helping push Alibaba’s top line up 57% over fiscal 1Q17.

Alibaba’s Cloud Computing segment’s revenues rose 96% to $359 million and contributed 5.0% to its top line. Alibaba credited the cloud gains to growth in the number of paying cloud clients and an increase in cloud client spending as the company has increased its cloud offerings.

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Alibaba’s YouTube rival going strong

The chart above shows Alibaba’s segment results. Alibaba’s Digital Media arm grew its sales 30% to $602 million, representing 8% of the company’s top line. Its Digital Media gains were driven by strong customer adoption of Alibaba’s YouTube (GOOGL) rival Youku Tudou—Youku subscriptions rose 100% year-over-year in fiscal 1Q18.

The company’s Innovation division’s sales jumped 21% to $95 million, contributing 1.0% to Alibaba’s top line. Continued innovation in technology fields such as AI (artificial intelligence) helped drive gains in this segment. In July, Alibaba launched an AI-powered voice assistant called Tmall Genie, which mimics the functions of Amazon’s (AMZN) Echo smart speaker.

Decoding Alibaba’s future beyond commerce

As Alibaba’s Core Commerce segment heats up in the competitive space, the performance of the company’s non-commerce operations is closely watched by investors to try to decode its long-term prospects.

In China, Alibaba is battling a resurgent JD.com (JD). On the international commerce scene, Alibaba is facing more competition from Amazon, eBay (EBAY), and Walmart (WMT).

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