Alibaba (BABA) Q2 2023 Earnings: What to Expect

Alibaba - maybefalse / Getty Images
Credit: maybefalse / Getty Images

Has Alibaba (BABA) stock regained its popularity? After a brutal twelve months and a tough 2022, Alibaba stock has suddenly caught fire, rising more than 10% just in the past few trading sessions. The shares have surged some 25% since reaching their 52-week low of $58 on Oct. 24.

Can the strong run the continue? The Chinese e-commerce giant will report second quarter fiscal 2023 earnings results before the opening bell Thursday. The reason for the resurgence is due, in part, to the company reporting that its e-commerce sales for the first 10 months of the current fiscal year rose 7.2%, better than 6.2% growth logged in the Jan. through Sept. period. Alibaba just concluded the Singles' Day sales event, China's equivalent to Black Friday.

While the company didn't report any specific sales figures related to Singles' Day, Alibaba noted that the volume was comparable to figures from a year earlier, during which its gross merchandise volume reached $84.5 billion, rising some 8% year over year. But although the market has gotten excited, it’s worth noting that the last year’s total was some 18 percentage points below the growth in 2020. This, however, highlights the decline in sentiment and expectations of the company has lost more than two-thirds of its market cap since its peak in the latter part of 2020.

The company has had to endure not only prolonged periods of regulatory pressures, but also a disruption in its political standing in China and strong operating requirements imposed by the SAMR. The added pressure has impacted not only Alibaba's revenue growth, but also its profit margins which have fallen by eleven percentage points from 27% in 2020 to 16% at the end of 2021. Currently trading at a massive discount, investors are hoping that the bottom has been reached and its quarterly results Thursday will offer positive surprises.

In the three months that ended September, Wall Street expects Hong Kong-based online retailer to earn $1.64 per share on revenue of $29.35 billion. This compares to the year-ago quarter when earnings came to $1.75 per share on revenue of $31.43 billion. For the full year, ending April 2023, earnings are projected to decline 7.4% year over year to $7.22 per share, while full-year revenue of $124.57 billion would decline 1.4% year over year.

Alibaba's massive scale and e-commerce ecosystem was once seen as an asset, and now has seemingly become a liability. To be sure, the company still has multiple streams of revenue which it can grow. However, the increased regulatory scrutiny from the Chinese government has placed a cap on any growth tailwinds it can muster. Accordingly, the market continues to slash the company’s revenue growth forecasts as it navigates through these headwinds.

These headwinds were noticeable in the first quarter. Although the company reported revenue of $30.7 billion that came slightly above the consensus of around $30 billion, it marked a 4% decline year over year. Adjusted EPS of $1.75 per share was also topped the $1.58 per share expected. However, several of the company’s business, including the cloud segment suffered from weakening demand. During the quarter, Alibaba's China commerce segment fell 1% to $21.19 billion, which was slightly offset by a 10% rise in the company’s cloud segment which posted revenue of $1.59 billion.

The company remains confident, saying it expects to generate strong operating cash flow. During the quarter, the company bought back roughly $3.5 billion worth of stock. The company has approximately $12 billion left in its stock buyback program. However, for the stock to maintain its current uptrend, on Thursday investors will want to see growth reaccelerate. BABA must deliver top and bottom-line beat, upside guidance and positive commentary about growth prospects for the balance of fiscal 2023.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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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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