Alibaba (NYSE:BABA) is due to release its quarterly results on Thursday, August 23. This is an event that is sure to be closely watched by traders around the world as they try to decipher whether or not Chinese stocks will continue to decline as trade tension between Washington and Beijing persists. Over the past three months, Alibaba stock has been on the decline, much like most other China-based companies — as trade tension continues. A recent agreement between China and the U.S. to discuss the escalating trade war at the end of the month helped give BABA stock a temporary lift, but overall shares had fallen nearly 20% since reaching $210 back in June. 

Analysts are divided when it comes to whether or not to buy BABA stock on the pre-earnings dip. (Though the 3% pop today seems to show the bulls have the edge.) On one hand, Alibaba, with its promising future plans and exciting growth prospects, has become markedly cheaper. But on the other, the company’s upcoming results may not be well received in light of the mounting headwinds that the trade war has created.

Whether you’re pro-BABA stock or not, the firm’s fiscal first-quarter results will be ones to watch and here’s why.

China-U.S. Trade Problems

Analysts participating in Alibaba stock’s earnings call are guaranteed to use the opportunity to discuss how trade tension will affect the firm moving forward.

While Alibaba stock is relatively insulated because its operations are largely based in China, the company could still suffer the larger effects that a trade war with the U.S. could bring to Beijing. One of the biggest concerns is that the trade tension will hurt the overall retail environment in China. It appears that retail spending in the nation is declining which would be problematic for BABA.

Beijing’s most recent retail sales figures showed a decline in spending during July, which won’t impact Alibaba’s earnings results this time around, but doesn’t bode well for the back half of the year.

Margins

Margins are an important aspect of Alibaba’s earnings to keep a close eye on. The company’s increased spending on future growth significantly ate into profits last quarter, but investors were willing to let that slide in the name of future gains. This quarter, more investment is likely to weigh on the results again, but it’s questionable whether or not investors will be as forgiving as they’ve been the past — especially considering the shadow that trade tension has already cast over the stock. 

With that in mind, investors will also be looking for details on some of the company’s latest ventures, including a partnership with Starbucks (NASDAQ:SBUX) and the acquisition of food-delivery startup Ele.me. Both of those initiatives are expected to help BABA build out its grocery arm and help the company with what it calls “new retail” initiatives.

New Retail Progress

Speaking of which, investors will also be keen to hear about the progress Alibaba has made on its “new retail” initiatives.

Executive chairman Jack Ma has been talking about the company’s plans to revolutionize the retail space by merging online and offline shopping. The concept aims to keep the experience of shopping at physical locations, but digitize the actual buying and delivery process. Right now, BABA has already applied this concept to its Hema supermarkets as well as a new so-called “car vending machine.” But the company is planning to take the initiative even further by helping small, traditional retailers add digitized inventory management and better insight into their customers’ behavior through the use of a BABA online system. 

The Bottom Line

Alibaba stock certainly has a lot going for itself, and the margin pressure we’re likely to see in the coming quarter is justified as the firm continues to build out its future initiatives. The real question when it comes to taking a position ahead of BABA’s earnings is whether or not investors will be willing to overlook the investment spending in light of Chinese trade tensions with the U.S.

The trade issues between Beijing and Washington have had a much larger impact on retailers than investors initially anticipated, so some of the success that Chinese companies like BABA have over the next 6 months will depend on larger macro trends and investor sentiment rather than performance or future promise.

However, with that in mind, long-term traders who can deal with some turbulence might want to consider taking a position in BABA stock now while the share price is depressed in order to reap the benefits once the U.S. and China have worked out their trade issues. 

As of this writing Laura Hoy was long SBUX.