Alibaba Group Holding Ltd (NYSE:BABA) has been a hot ticket so far this year. The Asian e-commerce titan has gained nearly 40% over the past four-plus months, and if the mutterings around Wall Street are anything to go by, BABA stock will jump again following its fiscal fourth-quarter earnings report, due out before Thursday’s bell.
The bar is high — revenues are expected to jump 49% to $5.2 billion, and earnings should surge similarly, up 50% to 66 cents per share.
But that’s all the more reason to believe a solid beat should be enough to keep Alibaba stock sprinting at its breakneck 2017 pace.
Alibaba’s Q4 Earnings Report: What to Watch
Traders are decidedly optimistic about Alibaba’s upcoming earnings announcement, but they’ll have their eye on a few specifics.
Monetization: One big thing to watch is Alibaba’s monetization rate. Alibaba generates most of its revenue through commissions and advertising, and many are expecting the firm’s efforts to boost traffic to pay off in the form of better advertising sales and higher click-through rates.
Last November, BABA revealed a new retail strategy in which the company promised to reinvent the sector by offering a multi-channel experience that will help brands get in front of consumers and make a lasting impression. Six months later, it will be important for investors to see whether or not the firm’s innovative ideas are paying off by drawing more brands to the platform, upping customer engagement and increasing the firm’s merchant fee collection.
Media Bets: Another big highlight of Alibaba’s earnings report will be the company’s balooning media strategy. Much like its American counterpart, Amazon.com, Inc. (NASDAQ:AMZN), Alibaba is working to improve its media and entertainment offerings — an important step in creating a one-stop platform for consumers, but an expensive one, too. In the coming three years, the company is slated to spend some $7.2 billion on enhancing its entertainment options.
Anyone long BABA stock should pay attention to whether the company is on track with these investments, whether they’re actually enhancing the Alibaba experience and, most importantly, whether they’re starting to make a dent anywhere in the income statement.
Cloud Computing: Another important factor for Alibaba will be the firm’s progress in the cloud computing space. Again, Amazon is well known here for its Amazon Web Services offerings, but Alibaba also has its hands in the pie via Alibaba Cloud — a suite of services that include storage and networking, database services, elastic computing and security.
It’s a massive growth opportunity, if AWS’ eye-popping results over the past few years are any indication. Admittedly, though, Alibaba has had a tougher road so far. Alibaba’s cloud computing arm hasn’t been profitable thus far — the business lost more than $90 million last year.
But what matters now is gobbling up market share and revenue growth to get an idea whether Alibaba’s spending on the cloud is starting to pay off. Eventually, with enough scale, Alibaba should be able to flip the switch and start cranking out profits from this division.
Bottom Line on BABA Stock
Many investors call Alibaba the “Chinese Amazon,” but while the two share many similarities, they differ in several significant areas, such as how their businesses actually operate … and as it pertains to Alibaba shareholders, international growth.
Amazon has become a massive international superpower, but Alibaba hasn’t yet made a major expansion out of Asia. Anyone adding BABA to their portfolio in the hopes of investing in “the next Amazon,” then, should be looking for additional inroads, specifically in Europe and the U.S.
For now, China is Alibaba’s bread and butter.
Is that problematic for the moment? Hardly. All signs point to continued strength in e-commerce sales, which should guide Alibaba to a fourth-quarter beat and a strong pop in BABA stock.
But keep an eye on the aforementioned details, as they’ll be a far better gauge of what you can expect out of the stock in the months and years to come.
As of this writing, Laura Hoy was long AMZN.
