Chinese e-commerce giant Alibaba (BABA) might not be completely back in the market’s good graces, but the company has begun to gain favor where it matters. Currently trading at around $97, BABA stock has risen close to 70% from its low of $58, including gains of 15% in the past thirty days.
BABA’s stock gains have been fueled by what is believed to be a softer regulatory and macroeconomic environment in China that can improve the company's growth trajectory. And with China opening and having relaxed its zero-COVID policy, investors want to know whether Alibaba’s recent gains are not only sustainable, but also whether room for more upside is realistic. These are some of the main questions investors will focus on when BABA reports first quarter fiscal 2024 earnings results before the opening bell Thursday.
BABA stock is up 8% year to date, still trailing the 18% rise in the S&P 500 index. Also with the stock falling 60% in three years, compared to a 40% rise in the S&P 500 index, BABA still has a lot of ground to make up. The company is poised to catch up. Along with more subdued regulatory scrutiny of big tech platforms in China, the headwinds BABA has faced over the past two years have begun to fade. Another potential catalyst is the management recently touting new AI tools, putting BABA at the forefront the main providers of key AI technologies in China.
What’s more, when factoring BABA’s treasure chest of $55 billion in cash, along with the company consistently producing strong cash flows, Alibaba still presents tons of value at current levels. On Thursday the stock can continue its climb if Alibaba can deliver a top- and bottom-line beat and provide confident outlook for the next quarter and full year, especially given that it is facing much more favorable year-over-year comparisons.
In the three months that ended June, Wall Street expects Hong Kong-based online retailer to earn $2.02 per share on revenue of $31.48 billion. This compares to the year-ago quarter when earnings came to $1.74 per share on revenue of $30.46 billion. For the full year, ending in May 2024, earnings are projected to rise 12% year over year to $8.55 per share, while full-year revenue of $132.47 billion would rise 8.9% year over year.
The modest top and bottom line growth expectations reflect how beneficial a recovering Chinese economy is for Alibaba’s prospects. The company’s diversified revenue sources within the country, along with its cloud potential presents tons of value at current levels, given that Alibaba currently extracts roughly 65% of its total revenue from its China Commerce segment. In terms of the cloud, while that remains a small portion of Alibaba’s revenue, it’s poised to be a long-term growth and profit center for BABA.
The company has also partnered with layer-1 blockchain Avalanche. According to John Wu, president of Ava Labs, Alibaba Cloud has about 4 million customers and 10 million developers. The partnership provides Alibaba’s clients with tools that aims to help businesses customize, launch and maintain their own metaverse spaces on Avalanche’s blockchain. In terms of current fundamentals, Alibaba recently delivered a mixed Q4 report that beat estimates on bottom lines, but missed on the top.
Q4 adjusted EPS of $1.52 beat by 16 cents, while Q4 revenue of $29.59 billion missed by $523 million. The big news during the quarter was the company announcing it would spin-off of its Cloud Intelligence Group to shareholders, with it eventually becoming an independent publicly listed company. Investor will want more details on this on Thursday. And if Alibaba can deliver a top- and bottom-line beat and provide confidence guidance, the stock will rebound.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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