Alibaba (NYSE: BABA) is scheduled to announce Q1 earnings results on Tuesday, August 3rd, before the market open.
Alibaba’s (BABA) stock has been under consistent pressure, falling more than 50% since the start of the year, driven by a combination of factors. Aside from fears over the company’s corporate governance, there remain some concerns that the company’s rocky political standing in China will impede future growth.
Investors are, nonetheless, struggling to reconcile whether Alibaba’s attractive valuation is low enough to offset these various risks. Meanwhile, Warren Buffett’s longtime partner Charlie Munger seems to think so, announcing in April he took a $37 million position in Alibaba. Having fallen from its peak of $319 per share to a recent 52-week low of $179, BABA stock trades at a massive discount to its FAANG peers which enjoy premium valuations. This is even though Alibaba has demonstrated high-growth, high-profitability characteristics that are consistent with the likes of Amazon and Google.
Alibaba is a proven winner thanks to its e-commerce ecosystem which offers multiple streams of revenue thanks to $1.2 trillion in gross merchandise volume. Not only does that level of scale, including hundreds of millions of daily users, generates consistent growth rates, but it also insulates the company’s economic downturns. With the stock currently trading at an all-time high, low valuation, the company on Tuesday must give investors a reason to believe the stock has significantly more room to run and can remain on a sustained path to recovery.
In the three months that ended June, Wall Street expects Hong Kong-based online retailers to earn $2.24 per share on revenue of $32.54 billion. This compares to the year-ago quarter when earnings came to $2.21 per share on revenue of $22.23 billion. For the full year, ending May, earnings are projected to decline 3.5% year over year to $9.70 per share, while full-year revenue of $143.51 billion would rise 30% year over year.
Amid this uncertainty, there are other aspects of BABA’s business that should continue to grow, albeit at a slower pace. The Chinese economy is on a path towards revitalization, meaning Alibaba profits will also continue to grow as well. This is because the company still controls some two-thirds of China’s e-commerce market through Taobao and Tmall. In the fourth quarter, BABA’s annual active consumers were 811 million, rising by 32 million on a year-over-year basis. Meanwhile, its mobile monthly active users reached 925 million in March, an increase of 23 million over December 2020.
The company’s cloud unit, Aliyun, which rose 50% year over year in fiscal 2021, is an area where Alibaba is still making significant investments. On Tuesday investors will want to see if this growth is sustainable. To dispel concerns, BABA on Tuesday must deliver the top and bottom-line beat, upside guidance, and positive commentary about growth prospects for fiscal 2022.
- The consensus EPS estimate is RMB 14.29 (-3.6% Y/Y) and the consensus Revenue Estimate is RMB208.67B (+35.7% Y/Y)
- Cloud revenue is estimated at RMB 16.98B driven by continued investments made in the Asia Pacific region; plans to invest $1B in the APAC region in the upcoming three years.
- It has launched its third data center in Indonesia and plans to open its first data center in The Philippines by 2021 end and set up an innovation center in Malaysia.
- Mobile monthly active users (MAU) are seen at 947.2M compared to 925M in the last quarter.
Alibaba Long (Buy)
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