Alibaba (NYSE:BABA) will next report earnings on Feb. 13 before market open. A month earlier, on Jan. 13, BABA stock hit an all-time high of $231.14. Many investors are now wondering if the Chinese e-commerce giant will be able to deliver robust results that could push the share price to new highs.

During this earnings season, I expect to see volatile price action with a potential downward bias in Alibaba stock, especially amid the current coronavirus outbreak that is making headlines globally. However, as China’s move to a consumption-based economy is here to stay, long-term investors may want to consider investing in BABA stock, especially if there is a dip in price in the coming weeks.

What to Expect from BABA Stock’s Earnings

When Alibaba reported second-quarter results in November 2019, it beat revenue expectations, thanks to strong growth in its e-commerce and cloud computing businesses. Revenues grew 40% year-over-year. Similarly, non-GAAP earnings per share of $1.83 translated into a 36% increase year-over-year.

The company reports revenue in four segments:

• Core Commerce (largest segment as it accounts for 85% of its top line)
• Cloud Computing (revenue grew by an impressive 64% year-over-year)
• Digital Media and Entertainment
• Innovation Initiatives

In Q2, annual active consumers reached 693 million, a quarterly increase of 19 million from the 12-month period ended June 30, 2019. Similarly, mobile monthly active users reached 785 million in September 2019, a quarterly increase of 30 million.

Therefore, when Q3 numbers come out, analysts will want to see the growth in user numbers continue.

Another important metric to pay attention to is Alibaba’s operating margin, which stands at about 17%. Over the years, BABA’s high operating margin has contributed to the profitability of Alibaba stock.

However, because of the coronavirus infection, Chinese New Year celebrations were curtailed, leading to a possible decrease in consumer spending. So the Street will be keen to see any relevant trading update from management.

The Company Is a Tech Leader in China

The group is the largest e-commerce, cloud computing and digital advertising company in China.

Its share of the the country’s e-commerce space is about 55%. In comparison, Alibaba’s closest rival, JD.com (NASDAQ:JD), has about 16.7% share of the Chinese e-commerce space.

Alibaba’s e-commerce leadership mainly comes from its high-margin Taobao and Tmall marketplaces. These two platforms charge commissions and listing fees, and as a result generate high fees from search rankings.

It also operates Alibaba.com, the group’s international trade site. The three sites have hundreds of millions of users globally and host millions of businesses. Currently, more than 90% of the e-commerce giant’s sales come from China. But BABA has investments in startups in South Asia and Southeast Asia, too. Therefore the coming quarters are likely to see international growth contributing to revenue growth.

The fact that the company is not highly leveraged also contributes to my upbeat view of Alibaba’s management and balance sheet. Its current ratio, which measures BABA’s ability to pay its short-term debt, stands at a healthy 1.4.

Alibaba’s Cloud Segment Is an Important Catalyst

Most investors appreciate the scale of the Chinese e-commerce market as well as the thriving mobile payments landscape. But what is potentially as important is the rise of the cloud market. China is one of the fastest growing cloud markets worldwide

As of August 2019, 59% of all registered companies in China are customers of Alibaba Cloud. The market share of Tencent Holdings (OTCMKTS:TCEHY), its biggest competitor, is about 11%.

Alibaba’s service offerings now include remote cloud computing power, data storage, big data processing and a content delivery network. As China’s cloud markets grows, so will the group’s cloud business. Alibaba’s concentrated push deeper into cloud computing is increasingly being compared to the success of Amazon’s (NASDAQ:AMZN) cloud business.

According to recent research by Juntao Ba of China’s Zhengzhou University of Industrial Technology, “…most domestic cloud computing manufacturers are no longer satisfied with the fixed demands of the domestic market, but focus on … actively expanding overseas customers and continuously building overseas infrastructure.”

The group is now the market leader in Asia. Therefore, forward-looking investors may want to pay attention to the international expansion strategy of not only Alibaba cloud, but the group’s other segments, too.

What Could Derail Alibaba Short-Term?

Over the past 12 months, Alibaba stock is up about 30%. And the price is currently hovering around $216.

The current viral outbreak is likely to affect both consumer and business activity during the first quarter of 2020. Although it is hard to quantify the exact effect on Alibaba, the uncertainty will likely make the share price more volatile in the short run.

Its beta is 2.3, which means it’s more than twice as volatile as the broader market. Therefore, if other big tech names or China-based companies decline, then BABA shares may also take a breather.

Are you are an investor who also follows technical charts? Then, you may be interested to know that short-term price charts urge investors to exercise caution. Alibaba is a momentum stock that tends to be choppy around earnings release dates. Thus the good times can disappear as quickly as they started.

In other words, a robust earnings report could easily boost risk appetite and push the share price well over $225. The stock could even go over $231.14 and make new highs. However, if investors become concerned for the future months following the results, BABA shares could also fall back toward $200 rather fast.

Depending on your risk/return profile, you may want to stay the course and ride out any potential volatility in the coming days. Alternatively, if you have paper profits, you may want to take some money off the table.

Finally, if you are experienced in hedging with options, you may consider initiating a covered call position. For example, an at-the-money covered call with March 20 expiry date would give you some protection for any potential fall in price. It would also enable you to participate in an up move following the quarterly release.

The Bottom Line on Alibaba Stock

Alibaba has become a highly regarded global company, and BABA stock offers U.S. investors the chance to invest in the growing Chinese consumer and e-commerce markets.

Well-performing stocks tend to repeat their robust performances. In Alibaba’s case, its strong cash flow from the core marketplace operations as well as the growth in cloud computing will likely be the main catalysts driving the stock price to new highs in this decade.

Long-term investors should view any further fall in the BABA stock price as an opportunity to buy the stock. However, traders with a short-term horizon should realize that Alibaba stock may be volatile in the short run.

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