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What's in Store for Alibaba Group's (BABA) Q2 Earnings?

Alibaba Group Holding LimitedBABA is set to report second-quarter fiscal 2016 results on Oct 26. Last quarter, the company posted a 17.07% negative earnings surprise.

Let's see how things are shaping up for this announcement.

Factor at Play

Alibaba Group's first-quarter fiscal 2015 earnings of 34 cents missed the Zacks Consensus Estimate by 7 cents due to higher investments in mobile, marketing and other new ventures.

Revenues of RMB20.2 billion (US$3.27 billion) were up 16.2% sequentially and 28% year over year. The strength in mobile business and continued growth in China's commerce retail business aided revenues. However, it missed the Zacks Consensus Estimate of $3.36 billion.

Some of the current buoyancy surrounding the shares is related to the Chinese e-Commerce goliath's strong dominance in the mobile search market and continuous efforts to develop products. However, increased investments in mobile, marketing and other new ventures could impact second-quarter results.

China's current economic weakness is another major concern for Alibaba. An even bigger issue is the soft exporting activity in the world's second-largest economy. The People's Bank of China has devalued its currency several times to offset export concerns. The government even tried to prop up Chinese markets by purchasing shares of public companies.

The company heavily depends on the Chinese economy and consumer spending, so it is sure to be affected by the present economic woes faced by the country.

Earnings Whispers

Our proven model does not conclusively show that Alibaba will beat earnings estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: While the Most Accurate estimate is pegged at 27 cents, the Zacks Consensus Estimate stands at 32 cents. Hence, the difference is -15.63%.

Zacks Rank: Alibaba's Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We cautoin against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies, which you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Facebook, Inc. FB , with Earnings ESP of +12.50% and a Zacks Rank #1 (Strong Buy)

Apple Inc. AAPL , with Earnings ESP of +1.60% and a Zacks Rank #2 (Buy)

Agilent Technologies Inc. A , with Earnings ESP of +2.13% and a Zacks Rank #2

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ALIBABA GROUP (BABA): Free Stock Analysis Report

AGILENT TECH (A): Free Stock Analysis Report

APPLE INC (AAPL): Free Stock Analysis Report

FACEBOOK INC-A (FB): Free Stock Analysis Report

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


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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