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Alibaba (BABA) Gears Up for Q4 Earnings: What's in Store?

Zacks Equity Research

Alibaba Group Holding Limited BABA is set to report fourth-quarter fiscal 2019 results on May 15. In the last reported quarter, the Chinese e-commerce giant delivered a positive earnings surprise of 8.59%.

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 5.44%.

Coming to price performance, shares of Alibaba have lost 8.7% in the past year compared with its industry’s 2.4% decline.


Strength in Core Commerce Business

This segment comprises marketplaces operating in retail and wholesale commerce in China, and international commerce.

During the fiscal fourth quarter, Alibaba teamed up with Safaricom, a Kenya-based provider of voice, data, financial services and enterprise solutions. The deal is expected to aid Alibaba’s top-line growth in the fiscal fourth quarter.

Also, during the quarter, Alibaba’s Tmall Global announced two initiatives, namely Centralized Import Procurement (“CIP”) and Tmall Overseas Fulfillment (“TOF”), in a bid to focus on bolstering the inflow of imported goods into China.

Both the initiatives are likely to encourage sellers globally, irrespective of scale, to foray into the retail space of China and strengthen its customer base by reaching out to the company’s 700 million active users.

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.

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 the 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 is 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.

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. and Jd.com, 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 -4.61%, 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.

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

Stocks to Consider

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

Agilent Technologies, Inc. A has an Earnings ESP of +2.10% and a Zacks Rank #2.

MongoDB, Inc. MDB has an Earnings ESP of +0.69% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Neon Therapeutics, Inc. NTGN has an Earnings ESP of +17.93% and a Zacks Rank #3.

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