Last month, Chinese e-commerce behemoth Alibaba (BABA) made history as the biggest IPO ever. On Tuesday, Nov. 4, the company will make history once again with the first Alibaba earnings release since BABA stock began trading on the NYSE.
How those Alibaba earnings come in will help determine if BABA stock can keep flying high the way it has been the past two weeks, or if its magic carpet will lose elevation the way it did immediately following the huge first-day trading spike on Sept. 19.
On that first day, BABA stock, which had been priced at $68, opened at $92.70. The stock climbed all the way to $99.70, intraday, but then it started slipping. in the following weeks, contrary to what many pundits had predicted, BABA stock continued to slide as investors actually sold shares and banked some of those IPO profits.
Then, after nearly a month of declines, BABA shares turned bullish. Since closing at a low of $84.95 on Oct. 14, BABA stock has vaulted to about $99 a share, a jump of about 16%. One reason is high expectations for strong numbers when Alibaba earnings are released next Tuesday before the opening bell.
Earnings Hopes Run High
According to the consensus opinion on Wall Street, Alibaba earnings per share for the quarter ended Sept. 30 should come in at 49 cents. As for the top-line revenue estimate, Wall Street wants to see at least $2.55 billion. Alibaba needs to hit these marks for its stock to continue its recent run.
Wall Street also wants to see growth in the number of active users on Alibaba websites. Here the magic number is 300 million, up from 279 million reported in late August. If that level of active users is met, traders will be much more inclined to buy. The pros also want to see solid gross margins and operating margins, although margins are expected to be pressured by increased advertising spending in the quarter.
Another aspect of Alibaba earnings that will likely help determine the fate of BABA stock is the company’s potential partnership with Apple (AAPL). The subject is sure to come up in any post-earnings conference call. Investors are optimistic about a deal given the apparently chummy relationship between Alibaba CEO Jack Ma and Apple CEO Tim Cook.
A Ma and Cook Love-Fest
At the recent WSJD Live Global Technology Conference, both Ma and Cook spoke glowingly about each other. On the subject of Apple Pay, Ma said, “I hope we can do something together.” Not to be outdone by Ma in the show-the-love department, Cook countered by saying, “We’re going to talk about getting married later this week.”
Cook then added, “I have the utmost respect for Jack. We love to partner with people who are wicked smart … I think he’s a brilliant guy, I think he has brilliant people in the company. So if we can find some areas of common space, I love it.”
The potential for such a deal between two of the biggest, most influential companies on the planet is another reason why BABA stock has enjoyed its recent upswing. So, if the numbers come in as expected, or slightly better, then look for BABA stock to continue its magic carpet ride.
As of this writing, Jim Woods was long AAPL.