Alibaba Group Holding Ltd Will Report A Stellar Quarter, Will The Stock Follow?

Alibaba Group Holding Ltd (NYSE:BABA) is likely to report its highest revenue growth in recent times. How will the BABA stock react?

Alibaba Group Holding Ltd Will Report A Stellar Quarter, Will The Stock Follow

Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) is scheduled to report its fiscal 2018 third-quarter earnings tomorrow, before the opening bell. With the stock almost doubling in 2017,  there are still high expectations from the online retail giant's latest earnings to propel Alibaba stock much higher. BABA stock is already up more than 15% in the year-to-date. Despite the impressive growth prospects, some remain still skeptical about Alibaba stock's fortunes in 2018 as the competition from other Chinese giants Tencent (OTCMKTS:TCEHY) and JD.com (NASDAQ:JD) building up. Shares of Alibaba also had lackluster response even after strong second-quarter earnings in November last year. The stock has lost some momentum ahead of earnings. With Alibaba set for a record quarter, the question now is, how will the BABA stock react?
BABA stock chart

Alibaba set to post best revenue growth in recent quarters.

Analysts expect Alibaba to report a non-GAAP EPS of $1.67 a share against the revenues of $12.61 billion. Both the figures represent a tremendous improvement from the comparable quarter last year. The expected non-GAAP EPS  represents more than 28% improvement from the last year's comparable quarter EPS of $1.30 a share. On the top line front, the Chinese retail behemoth is expected to post 64% revenue growth from the same quarter last year, highest in the last 15 quarters. The top management had revised the full-year revenue growth guidance to 49% to 53% for the second half of the fiscal year. The company also expressed confidence in delivering their prior guidance range of 45% to 49% YoY excluding the impact from the Cainiao consolidation for the full year.BABA revenue chart

Alibaba is firing on all cylinders as its strong revenue growth is boosted by high double-digit revenue growth in all its major segments like Alicloud and the digital and media segment. We in our earlier coverage had separately highlighted how the cloud and media segment could be big growth drivers for Alibaba. A similar theme could be seen in the latest quarter earnings as well.

Alibaba juggernaut is likely to roll on for some time.

According to data shared by Lee McCabe, VP and GM for Alibaba North America, the Chinese consumers are likely to the driving force behind the company's core commerce segment growth in the days ahead as the company which has set its target of $1 trillion GMV by 2020. The data suggests that "By 2019, more than one in four (26.7%) of all global online shoppers will be in China, but because they are far more active than other online consumers, they will account for 57% of global online sales."  On top of it, "by 2020, China is projected to have 891 million online shoppers, compared to 270 million in the U.S.; by 2025, Chinese consumers will represent 44% of global luxury sales". Since these numbers are shared by Alibaba itself, one needs to take these data with a pinch of salt. However, even analysts are suggesting that retail sales in China are likely to take off like anything. Japanese bank, Mizuho estimates that retail sales in China are on track to hit just over $5.8 trillion in 2018. This would mean that retail sales in China are expected to match or better sales in the US for the first time. Jianguang Shen, chief China economist for Mizuho, stated that 'China's best bargaining chip is its massive and fast-growing domestic market'.

US and China retail sales

All these trends bode very well for Alibaba' core commerce segment which grew 64% YoY in the September quarter. Given that almost 80% of all e-Commerce in China is serviced by Alibaba’s sites, the retail trends do give a strong hint that the Alibaba juggernaut will continue to roll. Now, with Alibaba's omnichannel strategy, it is likely to capture the majority of booming retail sales in China.

Other things to watch out for.

Apart from the earnings figures of its core commerce segment, there will also be a good focus on the company's high flying cloud business. Alibaba is making massive investments to keep the growth rate going, so, an, update on the roadmap of its investing activities will be closely watched. With reports of tie-up with wholesale retail giant Kroger (NYSE:KR) doing the rounds, investors would be eager to hear more on this front during the earnings call. Also, this would be the first full quarter for which the Cainiao's financials will be included in the books. Some analysts are of the view that this could be a drag on the company's earnings, the effect of which is likely to be closely monitored in the latest earnings release. More light on new initiatives would be another such piece of information, for which investors would be interested.

Bottomline.

There's little doubt in suggesting that Alibaba is one of the best growth stories around in the market. However, it needs to be seen whether investors cheer the stock after its latest earnings release. Alibaba is set to post another strong earnings beat going by its recent track record. Even the earnings whisper number of $1.74 suggests a 7 cents beat whereas the Estimize estimate suggests earnings hints at an EPS estimate of $1.71 per share. Despite its massive bull run in 2017, BABA stock still has more room to run in 2018. Wall Street also has thrown its weight behind the stock with only two hold ratings among the 45 analysts covering Alibaba as rest have a buy or strong buy rating. Alibaba stock is still a good long-term buy.

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