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Alibaba (BABA) Gears Up for Q1 Earnings: What's in Store?

Zacks Equity Research

Alibaba Group Holding Limited BABA is set to report first-quarter fiscal 2020 results on Aug 15. In the last reported quarter, the Chinese e-commerce giant delivered a positive earnings surprise of 21.90%.

The surprise history has been decent in Alibaba’s case. The company surpassed estimates in three of the trailing four quarters, with average positive surprise of 12.52%.

Strength in Core Commerce Business

During the fiscal first quarter, the company set up a new English-language portal on cross border e-commerce platform, Tmall Global. The deal, which will expand product options on Alibaba's Tmall platform, will likely aid the company’s top-line growth in the to-be-reported quarter.

Also, during the quarter, it signed an agreement with the Yiwu government to establish an e-commerce trade hub. The deal, which will enhance cross border e-commerce activities, will expand its top-line growth in the quarter to be reported.

Given innovation in data technology, widespread application of big data and increasing validation for Taobao and Tmall portals, the top line is expected to further expand in the quarter to be reported.

Alibaba Group Holding Limited Price and EPS Surprise


Alibaba Group Holding Limited Price and EPS Surprise

Alibaba Group Holding Limited price-eps-surprise | Alibaba Group Holding Limited Quote

Strong Mobile Growth

The company’s Mobile Monthly Active Users are expected to increase on a year-over-year basis in the quarter to be reported, in turn driving revenues. This is because of increased adoption of mobile devices by consumers as the primary method of accessing Alibaba’s platforms.  

It has been witnessing an increase in monetization rates over the last few quarters. The company has been building its online marketing inventory on both mobile and PC, and is likely to continue recording higher monetization rates. These factors are likely to boost Alibaba’s profits in the fiscal first quarter.

Growing Cloud Momentum

In the to-be-reported quarter, revenues from the cloud segment are expected to increase from a year ago, driven by growth in the number of paying customers and higher-than-usual spending by them, reflecting increased usage of services.

Overhangs Remain

Concerns remain in the form of the company’s heavy spending in new areas of core online retail business, with investments in supermarkets, stores, new artificial intelligence, digital entertainment and cloud computing businesses.

Also, U.S.-China trade tensions and other political worries may continue to weigh on Alibaba's domestic as well as international growth.

Moreover, increasing competition from companies like Amazon.com Inc. (AMZN) and Jd.com (JD), among others, as well as deceleration of growth in the e-commerce market — both domestically and internationally — might impact its results in the soon-to-be-reported quarter.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided, especially when the company is witnessing negative estimate revisions.

Currently, Alibabahas a Zacks Rank #3 and an Earnings ESP of -1.14%, which does not indicate a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

You may consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank.

CACI International, Inc. CACI has an Earnings ESP of +4.02% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cisco Systems, Inc. CSCO has an Earnings ESP of +0.41% and a Zacks Rank #3.

Ciena CIEN has an Earnings ESP of +5.26% and a Zacks Rank #2.

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