Will Alibaba Group Holding Ltd (BABA) Soar on Earnings?

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Alibaba Group Holding Ltd (NYSE:BABA) is forecast to deliver solid revenue growth when it reports earnings Thursday, and some unexpected upside in a key area could give BABA stock a pop.

Will Alibaba Group Holding Ltd (BABA) Soar on Earnings?For the most recent quarter, Alibaba earnings are forecast to fall 68% to 9.9 billion yuan (or $1.5 billion) year-over-year partly because of heavy investment. On an adjusted basis, BABA is forecast to post earnings of 63 cents a share vs. $3.68 a share last year.

Revenue is projected to increase roughly 50% to $4.54 billion from $3 billion a year ago, driven by growth in gross merchandise volume and contributions from emerging businesses.

And it’s information on those newer businesses that investors should be looking for. Cloud-based services are pretty much the hottest thing going. Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc‘s Google (NASDAQ:GOOG, NASDAQ:GOOGL), Microsoft Corporation (NASDAQ:MSFT) and Oracle Corporation (NASDAQ:ORLC) are just some of the tech giants chasing the space.

BABA’s own foray into the cloud, known as AliCloud, is poised to generate some serious top-line acceleration. Analysts at Citigroup think the segment hit $3.3 billion in revenue by 2019 — with 20% margins. At the moment it’s a cost center and so anything that points to better-than-expected growth will be taken as good news.

As it is with so many technology names, another critical area of interest is mobile. The question is how well BABA has integrated mobile internet and entertainment across different platforms. Unlike AMZN, Alibaba is also a search company and electronic payments processor with multiple web portals.

BABA Earnings Look to Defend the Uptrend

BABA promised big things when it released guidance in June. It would sure help distract a market looking askance at a number of risks. The company has held up well as the Chinese economy has slowed down, but fears about consumer spending and business investment remain.

Then there’s the matter of regulators poking around both in the U.S. and China. The Chinese government is cracking down on BABA for allegedly turning a blind eye to counterfeit goods and other malfeasance on the part of merchants.

At the same time, the Securities and Exchange Commission is investigating Alibaba’s accounting practices. It’s not very reassuring when a famed short seller like Jim Chanos is trashing your stock.

Those issues are unlikely to restrain BABA stock if quarterly results feed its bullish forecast. Alibaba expects the top line to expand by 48% for the fiscal year ending in March. That represents significant acceleration over last year’s growth of 33%. Even after stripping out contributions from acquisitions, BABA projects revenue growth of 36% this year. The market loves to see this kind of thing.

Wall Street is extremely positive on the stock. Of the 36 analysts covering BABA, 30 call it a buy. That’s easy to understand. How often do you find a company with a market cap as big as Alibaba’s that is seeing this kind of growth?

Alibaba stock has been in a steepening uptrend since mid-March. If earnings come in on target, you can expect that to continue.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/08/alibaba-stock-baba-earnings/.

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